Question

# A company is considering replacing an old piece of machinery, which cost \$618,800 and has \$344,300...

A company is considering replacing an old piece of machinery, which cost \$618,800 and has \$344,300 of accumulated depreciation to date, with a new machine that has a purchase price of \$539,850. The old machine could be sold for \$234,800. The annual variable production costs associated with the old machine are estimated to be \$61,850 per year for eight years. The annual variable production costs for the new machine are estimated to be \$20,850 per year for eight years.

 Required: a. Prepare a differential analysis dated September 13 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required. b. Determine whether the company should continue with (Alternative 1) or replace (Alternative 2) the old machine. c. What is the sunk cost in this situation?

a. Prepare a differential analysis dated September 13 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.

 Differential Analysis Continue with (Alternative. 1) or Replace (Alternative. 2) Old Machine September 13
 1 Continue with Old Machine Replace Old Machine Differential Effect on Income 2 (Alternative 1) (Alternative 2) (Alternative 2) 3 4 5 6 7 8

 a Differential Analysis Continue with (Alternative. 1) or Replace (Alternative. 2) Old Machine September 13 Continue with Old Machine Replace Old Machine Differential Effect on Income (Alternative 1) (Alternative 2) (Alternative 2) Revenues: 0 234800 234800 Proceeds from sale of old machine Costs: Purchase price 0 -539850 -539850 Variable production costs(8 years) -494800 -166800 328000 Income (loss) -494800 -471850 22950 b Replace the old machine c Book value of the old machine

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