Question

Lexigraphic Printing Company is considering replacing a machine that has been used in its factory for four 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, 10-year life	$88,810
Annual depreciation (straight-line)	8,770
Annual manufacturing costs, excluding depreciation	23,475
Annual non-manufacturing operating expenses	5,960
Annual revenue	74,360
Current estimated selling price of machine	29,740

New Machine
Purchase price of machine, six-year life	$119,570
Annual depreciation (straight-line)	19,820
Estimated annual manufacturing costs, excluding depreciation	7,070

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

Required:

1.

Prepare a differential analysis as of April 30 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the total differential income that would result over the six-year period if the new machine is acquired. 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.

2.

List other factors that should be considered before a final decision is reached.

1. Prepare a differential analysis as of April 30 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the total differential income that would result over the six-year period if the new machine is acquired. 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

April 30

1		Continue with Old Machine	Replace Old Machine	Differential Effect on Income
2		(Alternative 1)	(Alternative 2)	(Alternative 2)
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Answer 1

1)

	Continue with Old Machine	Replace Old Machine	Differential Effect on Income
proceeds from sale of old machine		29740	29740
Annual manufacturing costs, excluding depreciation	23475*6=(140850)	7070*6=(42420)	98430
urchase price of machine, six-year life		(119570)	(119570)
Total cost	(140850)	(132250)	8600

**since tax rate is not given ,depreciation is ignored as it is a non cash expense

2)other factors to considered:

opportunity cost of funds invested in new machine   (net of sale value received on old machine)

Improvements in quality of work

effect of federal income taxes on decision