Differential Analysis for Machine ReplacementBoyer Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $61,100, the accumulated depreciation is$24,400, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automaticmachine that has a purchase price of $127,100. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulatedthe following annual data on present and proposed operations:SalesDirect materialsDirect laborPower and maintenanceTaxes, insurance, etc.Selling and administrative expensesTotal expensesRevenues:Sales (5 years)Costs:PresentOperations$193,700$66,00045,800a. Prepare a differential analysis dated May 4 to determine whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). Prepare the analysis over the useful life of thenew machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.Purchase priceDirect materials (5 years)Direct labor (5 years)Power and maintenance (5 years)Taxes, insurance, etc. (5 years)Selling and admin. expenses (5 years)Profit (Loss)4,3001,50045,800$163,400Differential AnalysisContinue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)May 4Continuewith OldDifferentialEffectsMachine(Alternative 1) (Alternative 2) (Alternative 2)ProposedOperations$193,700$66,000c. Differences in capacity between the two alternatives isb. Based only on the data presented, should the proposal be accepted?22,6005,10045,800$139,500ReplaceOld Machineto consider before a final decision is made.

The process of evaluating and contrasting the benefits and drawbacks of several solutions to an…

Differential Analysis for Machine Replacement Boyer Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $61,100, the accumulated depreciation $24,400, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $127,100. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulat the following annual data on present and proposed operations: Sales Direct materials Direct labor Power and maintenance Taxes, insurance, etc. Selling and administrative expenses Total expenses Revenues: Sales (5 years) Costs: Present Proposed Operations Operations $193,700 $66,000 45,800 4,300 1,500 45,800 Purchase price Direct materials (5 years) Direct labor (5 years) a. Prepare a differential analysis dated May 4 to determine whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). Prepare the analysis over the useful life of the new machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Power and maintenance (5 years) Taxes, insurance, etc. (5 years) Selling and admin. expenses (5 years) Profit (Loss) Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) May 4 $163,400 Continue with Old $193,700 $66,000 Replace Old Machine c. Differences in capacity between the two alternatives is 22,600 5,100 45,800 $139,500 b. Based only on the data presented, should the proposal be accepted? Machine (Alternative 1) (Alternative 2) (Alternative 2) Differential Effects to consider before a final decision is made.

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 10E: Differential analysis for machine replacement Boyer Digital Components Company assembles circuit...