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Differential Analysis for Machine Replacement Proposal Flint Tooling Company is considering replacing a machine that has...

  1. Differential Analysis for Machine Replacement Proposal

    Flint Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows:

    Old Machine
    Cost of machine, eight-year life $38,000
    Annual depreciation (straight-line) 4,750
    Annual manufacturing costs, excluding depreciation 12,400
    Annual nonmanufacturing operating expenses 2,700
    Annual revenue 32,400
    Current estimated selling price of the machine 12,900
    New Machine
    Cost of machine, six-year life $57,000
    Annual depreciation (straight-line) 9,500
    Estimated annual manufacturing costs, exclusive of depreciation 3,400

    Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.

    Required:

    1. Prepare a differential analysis as of November 8 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the The difference between the differential revenue and the differential costs.differential income that would result over the six-year period if the new machine is acquired. If an amount is zero, enter "0". Use a minus sign to indicate subtracted amounts, negative amounts, or a loss.

    Differential Analysis
    Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
    November 8
    Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effect on Income (Alternative 2)
    Revenues:
    Proceeds from sale of old machine $ $ $
    Costs:
    Purchase price
    Annual manufacturing costs (6 yrs.)
    Income (Loss) $ $ $

    Feedback

    2. What other factors should be considered before a final decision is reached?

    1. Are there any improvements in the quality of work turned out by the new machine?
    2. What opportunities are available for the use of the funds required to purchase the new machine?
    3. Are there any improvements in the quality of work turned out by the new machine and what opportunities are available for the use of the funds required to purchase the new machine?
    4. What effect would this decision have on employee morale?
    5. None of these choices are correct.
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Answer #1
1
Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
November 8
Continue with Old Machine
(Alternative 1)		 Replace Old Machine
(Alternative 2)		 Differential Effect on Income
(Alternative 2)
Revenues:
Proceeds from sale of old machine 0 12900 12900
Costs:
Purchase price 0 -57000 -57000
Annual manufacturing costs (6 yrs.) -74400 -20400 54000
Income (Loss) -74400 -64500 9900
2
Are there any improvements in the quality of work turned out by the new machine and what opportunities are available for the use of the funds required to purchase the new machine
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