3. A company is considering replacing an old piece of machinery, which cost $650,000 and has $350,000 of accumulated depreciation to date, with a new machine that has a purchase price of $545,000. The old machine could be sold for $251,000. The annual variable production costs associated with the old machine are estimated to be $71,000 per year for eight years. The annual variable production costs for the new machine are estimated to be $21,000 per year for eight years. a. Prepare a differential analysis dated September 13 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. b. What is the sunk cost in this situation?
3. A company is considering replacing an old piece of machinery, which cost $650,000 and has $350,000 of accumulated depreciation to date, with a new machine that has a purchase price of $545,000. The old machine could be sold for $251,000. The annual variable production costs associated with the old machine are estimated to be $71,000 per year for eight years. The annual variable production costs for the new machine are estimated to be $21,000 per year for eight years. a. Prepare a differential analysis dated September 13 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. b. What is the sunk cost in this situation?
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter11: Differential Analysis And Product Pricing
Section: Chapter Questions
Problem 9E: Machine replacement decision A company is considering replacing an old piece of machinery, which...
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