Differential Analysis for Machine Replacement Proposal Flint Tooling Company is considering replacing a machine that has been used in its factory for four years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows: Old Machine Cost of machine, 10-year life $106,700 Annual depreciation (straight-line) 10,670 Annual manufacturing costs, excluding depreciation 39,100 Annual nonmanufacturing operating expenses 12,900 Annual revenue 94,300 Current estimated selling price of the machine 36,700 New Machine Cost of machine, six-year life $138,000 Annual depreciation (straight-line) 23,000 Estimated annual manufacturing costs, exclusive of depreciation 18,900 Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine. Required: 1. Prepare a differential analysis as of November 8 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the total differential income that would result over the six-year period if the new machine is acquired. If an amount is zero, enter zero "0". Use a minus sign to indicate a loss. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) November 8 Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effect on Income (Alternative 2) Revenues Proceeds from sale of old machine $fill in the blank b2f547fd3fac00c_1 $fill in the blank b2f547fd3fac00c_2 $fill in the blank b2f547fd3fac00c_3 Costs Purchase price fill in the blank b2f547fd3fac00c_4 fill in the blank b2f547fd3fac00c_5 fill in the blank b2f547fd3fac00c_6 Annual manufacturing costs (6 yrs.) fill in the blank b2f547fd3fac00c_7 fill in the blank b2f547fd3fac00c_8 fill in the blank b2f547fd3fac00c_9 Income (Loss) $fill in the blank b2f547fd3fac00c_10 $fill in the blank b2f547fd3fac00c_11 $fill in the blank b2f547fd3fac00c_12 2. What other factors should be considered before a final decision is reached? Are there any improvements in the quality of work turned out by the new machine? What opportunities are available for the use of the funds required to purchase the new machine? Are there any improvements in the quality of work turned out by the new machine and what opportunities are available for the use of the funds required to purchase the new machine? What affect would this decision have on employee morale? None of these choices is correct.

Differential Analysis for Machine Replacement Proposal Flint Tooling Company is considering replacing a machine that has been used in its factory for four years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows: Old Machine Cost of machine, 10-year life $106,700 Annual depreciation (straight-line) 10,670 Annual manufacturing costs, excluding depreciation 39,100 Annual nonmanufacturing operating expenses 12,900 Annual revenue 94,300 Current estimated selling price of the machine 36,700 New Machine Cost of machine, six-year life $138,000 Annual depreciation (straight-line) 23,000 Estimated annual manufacturing costs, exclusive of depreciation 18,900 Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine. Required: 1. Prepare a differential analysis as of November 8 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the total differential income that would result over the six-year period if the new machine is acquired. If an amount is zero, enter zero "0". Use a minus sign to indicate a loss. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) November 8 Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effect on Income (Alternative 2) Revenues Proceeds from sale of old machine $fill in the blank b2f547fd3fac00c_1 $fill in the blank b2f547fd3fac00c_2 $fill in the blank b2f547fd3fac00c_3 Costs Purchase price fill in the blank b2f547fd3fac00c_4 fill in the blank b2f547fd3fac00c_5 fill in the blank b2f547fd3fac00c_6 Annual manufacturing costs (6 yrs.) fill in the blank b2f547fd3fac00c_7 fill in the blank b2f547fd3fac00c_8 fill in the blank b2f547fd3fac00c_9 Income (Loss) $fill in the blank b2f547fd3fac00c_10 $fill in the blank b2f547fd3fac00c_11 $fill in the blank b2f547fd3fac00c_12 2. What other factors should be considered before a final decision is reached? Are there any improvements in the quality of work turned out by the new machine? What opportunities are available for the use of the funds required to purchase the new machine? Are there any improvements in the quality of work turned out by the new machine and what opportunities are available for the use of the funds required to purchase the new machine? What affect would this decision have on employee morale? None of these choices is correct.

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 2PB: Differential analysis for machine replacement proposal Flint Tooling Company is considering...

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Question

Differential Analysis for Machine Replacement Proposal

Flint Tooling Company is considering replacing a machine that has been used in its factory for four years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows:

Old Machine
Cost of machine, 10-year life	$106,700
Annual depreciation (straight-line)	10,670
Annual manufacturing costs, excluding depreciation	39,100
Annual nonmanufacturing operating expenses	12,900
Annual revenue	94,300
Current estimated selling price of the machine	36,700

New Machine
Cost of machine, six-year life	$138,000
Annual depreciation (straight-line)	23,000
Estimated annual manufacturing costs, exclusive of depreciation	18,900

Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.

Required:

1. Prepare a differential analysis as of November 8 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the total differential income that would result over the six-year period if the new machine is acquired. If an amount is zero, enter zero "0". Use a minus sign to indicate a loss.

Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
November 8
	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues
Proceeds from sale of old machine	$fill in the blank b2f547fd3fac00c_1	$fill in the blank b2f547fd3fac00c_2	$fill in the blank b2f547fd3fac00c_3
Costs
Purchase price	fill in the blank b2f547fd3fac00c_4	fill in the blank b2f547fd3fac00c_5	fill in the blank b2f547fd3fac00c_6
Annual manufacturing costs (6 yrs.)	fill in the blank b2f547fd3fac00c_7	fill in the blank b2f547fd3fac00c_8	fill in the blank b2f547fd3fac00c_9
Income (Loss)	$fill in the blank b2f547fd3fac00c_10	$fill in the blank b2f547fd3fac00c_11	$fill in the blank b2f547fd3fac00c_12

2. What other factors should be considered before a final decision is reached?

Are there any improvements in the quality of work turned out by the new machine?
What opportunities are available for the use of the funds required to purchase the new machine?
Are there any improvements in the quality of work turned out by the new machine and what opportunities are available for the use of the funds required to purchase the new machine?
What affect would this decision have on employee morale?
None of these choices is correct.

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