Flint Tooling Company is considering replacing a machine that has been used in its factory for two 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 MachineCost of machine, eight year life$40,000Annual depreciation (straight line)5,000Annual manufacturing costs, excluding depreciation12,400Annual nonmanufacturing operating expenses2,900Annual revenue35,400Current estimated selling price of the machine13,900 New MachineCost of machines, six year life$59,000Annual depreciation (straight line)9,500Estimated annual manufacturing cost, less depreciation3,900 Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.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 differential income that would result over the six-year period if the new machine is acquired. List other factors that should be considered before a final decision is reached.

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Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter7: Operating Assets

Section: Chapter Questions

Problem 79.3C

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Flint Tooling Company is considering replacing a machine that has been used in its factory for two 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, eight year life	$40,000
Annual depreciation (straight line)	5,000
Annual manufacturing costs, excluding depreciation	12,400
Annual nonmanufacturing operating expenses	2,900
Annual revenue	35,400
Current estimated selling price of the machine	13,900

New Machine
Cost of machines, six year life	$59,000
Annual depreciation (straight line)	9,500
Estimated annual manufacturing cost, less depreciation	3,900

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

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 differential income that would result over the six-year period if the new machine is acquired.
List other factors that should be considered before a final decision is reached.

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