Question

#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 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

**a.1** Prepare a differential analysis dated
September 13, to determine whether to continue with (Alternative 1)
or replace (Alternative 2) the old machine

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 | -62700 | 62700 |

Costs | |||

Purchase price | 0 | 483300 | -483300 |

Variable productions costs (8 years) | 1246400 | 796000 | 450400 |

Income (loss) | 1246400 | 1216600 | 29800 |

2) Replace the machine

3) Sunk cost = old machine cost = $598800

#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...

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...

Machine Replacement Decision
A company is considering replacing an old piece of machinery,
which cost $598,000 and has $349,500 of accumulated depreciation to
date, with a new machine that has a purchase price of $483,400. The
old machine could be sold for $64,200. 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 $98,800
per year for...

Machine Replacement Decision
A company is considering replacing an old piece of machinery,
which cost $598,500 and has $347,600 of accumulated depreciation to
date, with a new machine that has a purchase price of $486,200. The
old machine could be sold for $62,500. The annual variable
production costs associated with the old machine are estimated to
be $157,800 per year for eight years. The annual variable
production costs for the new machine are estimated to be $99,200
per year for...

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...

#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 $600,500 and has $351,500 of accumulated depreciation to
date, with a new machine that has a purchase price of $487,000. The
old machine could be sold for $61,100. The annual variable
production costs associated with the old machine are estimated to
be $157,200 per year for eight years. The annual variable
production costs for the new machine are estimated to be $101,700
per year for...

Machine Replacement Decision
A company is considering replacing an old piece of machinery,
which cost $599,000 and has $349,300 of accumulated depreciation to
date, with a new machine that has a purchase price of $483,600. The
old machine could be sold for $63,300. 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 $100,400
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...

A company is considering replacing an old piece of machinery,
which cost $607,400 and has $368,800 of accumulated depreciation to
date, with a new machine that has a purchase price of $557,000. The
old machine could be sold for $234,900. The annual variable
production costs associated with the old machine are estimated to
be $60,200 per year for eight years. The annual variable production
costs for the new machine are estimated to be $17,300 per year for
eight years.
Required:...

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