Question

Machine Replacement Decision

A company is considering replacing an old piece of machinery, which cost $598,900 and has $347,000 of accumulated depreciation to date, with a new machine that has a purchase price of $486,100. The old machine could be sold for $64,800. The annual variable production costs associated with the old machine are estimated to be $155,800 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,700 per year for eight years.

**a.1** Prepare a differential analysis dated
September 13, to determine whether to continue with (Alternative 1)
or replace (Alternative 2) the old machine. If an amount is zero,
enter "0". For those boxes in which you must enter subtracted or
negative numbers use a minus sign.

Differential Analysis |
|||

Continue with Old Machine (Alt. 1) or Replace Old Machine
(Alt. 2) |
|||

September 13 |
|||

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 | |||

Variable productions costs (8 years) | |||

Income (Loss) | $ | $ | $ |

**a.2** 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 the $.

Answer #1

Differential Analysis: | |||||||

Continue with | Replace with | Differential | |||||

Old machine | New machine | Income | |||||

Revenue: | |||||||

Proceed from sale of old machine | 64800 | 64800 | |||||

Cost: | |||||||

Purchase price | -486100 | -486100 | |||||

variable proportion cost | -1246400 | -797600 | 448800 | ||||

Income / (loss) | -1246400 | -1,218,900 | 27500 | ||||

The old machine shall be replaced with new machine. | |||||||

The sunk cost is the price of old machine paid i.e. $ 598900 | |||||||

#8
Machine Replacement Decision
A company is considering replacing an old piece of machinery,
which cost $598,800 and has $352,100 of accumulated depreciation to
date, with a new machine that has a purchase price of $483,300. The
old machine could be sold for $62,700. The annual variable
production costs associated with the old machine are estimated to
be $155,800 per year for eight years. The annual variable
production costs for the new machine are estimated to be $99,500
per year...

#8
Machine Replacement Decision
A company is considering replacing an old piece of machinery,
which cost $598,800 and has $352,100 of accumulated depreciation to
date, with a new machine that has a purchase price of $483,300. The
old machine could be sold for $62,700. The annual variable
production costs associated with the old machine are estimated to
be $155,800 per year for eight years. The annual variable
production costs for the new machine are estimated to be $99,500
per year...

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production costs associated with the old machine are estimated to
be $155,800 per year for eight years. The annual variable
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#3
Machine Replacement Decision
A company is considering replacing an old piece of machinery,
which cost $597,000 and has $349,300 of accumulated depreciation to
date, with a new machine that has a purchase price of $484,500. The
old machine could be sold for $62,600. The annual variable
production costs associated with the old machine are estimated to
be $156,100 per year for eight years. The annual variable
production costs for the new machine are estimated to be $102,100
per year...

Machine Replacement Decision
A company is considering replacing an old piece of machinery,
which cost $597,700 and has $347,700 of accumulated depreciation to
date, with a new machine that has a purchase price of $486,500. The
old machine could be sold for $64,300. The annual variable
production costs associated with the old machine are estimated to
be $155,500 per year for eight years. The annual variable
production costs for the new machine are estimated to be $100,200
per year for...

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production costs associated with the old machine are estimated to
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per year for...

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which cost $599,000 and has $349,300 of accumulated depreciation to
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Machine Replacement Decision
A company is considering replacing an old piece of machinery,
which cost $598,900 and has $352,200 of accumulated depreciation to
date, with a new machine that has a purchase price of $486,500. The
old machine could be sold for $65,000. The annual variable
production costs associated with the old machine are estimated to
be $156,800 per year for eight years. The annual variable
production costs for the new machine are estimated to be $102,400
per year for...

A company is considering replacing an old piece of machinery,
which cost $599,600 and has $351,200 of accumulated depreciation to
date, with a new machine that has a purchase price of $483,900. The
old machine could be sold for $62,700. The annual variable
production costs associated with the old machine are estimated to
be $158,000 per year for eight years. The annual variable
production costs for the new machine are estimated to be $101,400
per year for eight years.
a.1...

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