April 29 Continue Replace old Differential with Old Effects Machine Machine (Alternative 2) (Alternative 1) (Alternative 2) Revenues: Proceeds from sale of old machine Costs: Purchase price Variable production costs (8 years) Profit (loss) etermine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. What is the sunk cost in this situation? he sunk cost is $

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
April 29
Continue
Replace
Differential
with Old
Old
Effects
Machine
Machine
(Alternative 2)
(Alternative 1) (Alternative 2)
Revenues:
Proceeds from sale of old machine
Costs:
Purchase price
Variable production costs (8 years)
Profit (loss)
Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.
b. What is the sunk cost in this situation?
The sunk cost is $
Transcribed Image Text:Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) April 29 Continue Replace Differential with Old Old Effects Machine Machine (Alternative 2) (Alternative 1) (Alternative 2) Revenues: Proceeds from sale of old machine Costs: Purchase price Variable production costs (8 years) Profit (loss) Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. b. What is the sunk cost in this situation? The sunk cost is $
Machine Replacement Decision
A company is considering replacing an old piece of machinery, which cost $168,000 and has $88,000 of accumulated depreciation to date, with a new
machine that has a purchase price of $107,900. The old machine could be sold for $90,100. The annual variable production costs associated with the old
machine are estimated to be $11,200 per year for 8 years. The annual variable production costs for the new machine are estimated to be $8,000 per
year for 8 years.
a. Prepare a differential analysis dated April 29 to determine whether to Continue with Old Machine (Alternative 1) or Replace old Machine (Alternative
2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.
Transcribed Image Text:Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $168,000 and has $88,000 of accumulated depreciation to date, with a new machine that has a purchase price of $107,900. The old machine could be sold for $90,100. The annual variable production costs associated with the old machine are estimated to be $11,200 per year for 8 years. The annual variable production costs for the new machine are estimated to be $8,000 per year for 8 years. a. Prepare a differential analysis dated April 29 to determine whether to Continue with Old Machine (Alternative 1) or Replace old Machine (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.
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