Differential Analysis for a Lease-or-buy Decision Moffett Industries is considering new equipment. The equipment can be purchased from an overseas supplier for $3,120. The freight and installation costs for the equipment are $610. If purchased, annual repairs and maintenance are estimated to be $390 per year over the 4-year useful life of the equipment. Alternatively, Moffett Industries can lease the equipment from a domestic supplier for $1,360 per year for 4 years, with no additional costs. Question Content Area a. Prepare a differential analysis dated February 12 to determine whether Moffett Industries should lease (Alternative 1) or purchase (Alternative 2) the equipment. (Hint: This is a “lease or buy” decision, which must be analyzed from the perspective of the equipment user, as opposed to the equipment owner.) If an amount is zero, enter "0". Differential AnalysisLease (Alt. 1) or Buy (Alt. 2) EquipmentFebruary 12 Line Item Description Lease Equipment (Alternative 1) Buy Equipment (Alternative 2) Differential Effects (Alternative 2) Costs: Purchase price $Purchase price $Purchase price $Purchase price Freight and installation Freight and installation Freight and installation Freight and installation Repair and maintenance (4 years) Repair and maintenance (4 years) Repair and maintenance (4 years) Repair and maintenance (4 years) Lease (4 years) Lease (4 years) Lease (4 years) Lease (4 years) Total costs $Total costs $Total costs $Total costs

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 2E

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Question Content Area

a. Prepare a differential analysis dated February 12 to determine whether Moffett Industries should lease (Alternative 1) or purchase (Alternative 2) the equipment. (Hint: This is a “lease or buy” decision, which must be analyzed from the perspective of the equipment user, as opposed to the equipment owner.) If an amount is zero, enter "0".

Differential AnalysisLease (Alt. 1) or Buy (Alt. 2) EquipmentFebruary 12

Line Item Description	Lease Equipment (Alternative 1)	Buy Equipment (Alternative 2)	Differential Effects (Alternative 2)
Costs:
Purchase price	$Purchase price	$Purchase price	$Purchase price
Freight and installation	Freight and installation	Freight and installation	Freight and installation
Repair and maintenance (4 years)	Repair and maintenance (4 years)	Repair and maintenance (4 years)	Repair and maintenance (4 years)
Lease (4 years)	Lease (4 years)	Lease (4 years)	Lease (4 years)
Total costs	$Total costs	$Total costs	$Total costs

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