Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $94,400, the accumulated depreciation is $37,800, 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 $196,400. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations: Present Operations Proposed Operations Sales $299,200 $299,200 Direct materials $102,000 $102,000 Direct labor 70,800 — Power and maintenance 6,600 34,900 Taxes, insurance, etc. 2,400 7,800 Selling and administrative expenses 70,800 70,800 Total expenses $252,600 $215,500 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". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) May 4 Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effect on Income (Alternative 2) Revenues: Sales (5 years) $fill in the blank 3f7641fe4f90f95_1 $fill in the blank 3f7641fe4f90f95_2 $fill in the blank 3f7641fe4f90f95_3 Costs: Purchase price fill in the blank 3f7641fe4f90f95_4 fill in the blank 3f7641fe4f90f95_5 fill in the blank 3f7641fe4f90f95_6 Direct materials (5 years) fill in the blank 3f7641fe4f90f95_7 fill in the blank 3f7641fe4f90f95_8 fill in the blank 3f7641fe4f90f95_9 Direct labor (5 years) fill in the blank 3f7641fe4f90f95_10 fill in the blank 3f7641fe4f90f95_11 fill in the blank 3f7641fe4f90f95_12 Power and maintenance (5 years) fill in the blank 3f7641fe4f90f95_13 fill in the blank 3f7641fe4f90f95_14 fill in the blank 3f7641fe4f90f95_15 Taxes, insurance, etc. (5 years) fill in the blank 3f7641fe4f90f95_16 fill in the blank 3f7641fe4f90f95_17 fill in the blank 3f7641fe4f90f95_18 Selling and admin. expenses (5 years) fill in the blank 3f7641fe4f90f95_19 fill in the blank 3f7641fe4f90f95_20 fill in the blank 3f7641fe4f90f95_21 Income (Loss) $fill in the blank 3f7641fe4f90f95_22 $fill in the blank 3f7641fe4f90f95_23 $fill in the blank 3f7641fe4f90f95_24 b. Based only on the data presented, should the proposal be accepted? c. Differences in capacity between the two alternatives is to consider before a final decision is made.

Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $94,400, the accumulated depreciation is $37,800, 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 $196,400. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations: Present Operations Proposed Operations Sales $299,200 $299,200 Direct materials $102,000 $102,000 Direct labor 70,800 — Power and maintenance 6,600 34,900 Taxes, insurance, etc. 2,400 7,800 Selling and administrative expenses 70,800 70,800 Total expenses $252,600 $215,500 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". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) May 4 Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effect on Income (Alternative 2) Revenues: Sales (5 years) $fill in the blank 3f7641fe4f90f95_1 $fill in the blank 3f7641fe4f90f95_2 $fill in the blank 3f7641fe4f90f95_3 Costs: Purchase price fill in the blank 3f7641fe4f90f95_4 fill in the blank 3f7641fe4f90f95_5 fill in the blank 3f7641fe4f90f95_6 Direct materials (5 years) fill in the blank 3f7641fe4f90f95_7 fill in the blank 3f7641fe4f90f95_8 fill in the blank 3f7641fe4f90f95_9 Direct labor (5 years) fill in the blank 3f7641fe4f90f95_10 fill in the blank 3f7641fe4f90f95_11 fill in the blank 3f7641fe4f90f95_12 Power and maintenance (5 years) fill in the blank 3f7641fe4f90f95_13 fill in the blank 3f7641fe4f90f95_14 fill in the blank 3f7641fe4f90f95_15 Taxes, insurance, etc. (5 years) fill in the blank 3f7641fe4f90f95_16 fill in the blank 3f7641fe4f90f95_17 fill in the blank 3f7641fe4f90f95_18 Selling and admin. expenses (5 years) fill in the blank 3f7641fe4f90f95_19 fill in the blank 3f7641fe4f90f95_20 fill in the blank 3f7641fe4f90f95_21 Income (Loss) $fill in the blank 3f7641fe4f90f95_22 $fill in the blank 3f7641fe4f90f95_23 $fill in the blank 3f7641fe4f90f95_24 b. Based only on the data presented, should the proposal be accepted? c. Differences in capacity between the two alternatives is to consider before a final decision is made.

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

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Question

	Present Operations	Proposed Operations
Sales	$299,200	$299,200
Direct materials	$102,000	$102,000
Direct labor	70,800	—
Power and maintenance	6,600	34,900
Taxes, insurance, etc.	2,400	7,800
Selling and administrative expenses	70,800	70,800
Total expenses	$252,600	$215,500

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". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
May 4
	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues:
Sales (5 years)	$fill in the blank 3f7641fe4f90f95_1	$fill in the blank 3f7641fe4f90f95_2	$fill in the blank 3f7641fe4f90f95_3
Costs:
Purchase price	fill in the blank 3f7641fe4f90f95_4	fill in the blank 3f7641fe4f90f95_5	fill in the blank 3f7641fe4f90f95_6
Direct materials (5 years)	fill in the blank 3f7641fe4f90f95_7	fill in the blank 3f7641fe4f90f95_8	fill in the blank 3f7641fe4f90f95_9
Direct labor (5 years)	fill in the blank 3f7641fe4f90f95_10	fill in the blank 3f7641fe4f90f95_11	fill in the blank 3f7641fe4f90f95_12
Power and maintenance (5 years)	fill in the blank 3f7641fe4f90f95_13	fill in the blank 3f7641fe4f90f95_14	fill in the blank 3f7641fe4f90f95_15
Taxes, insurance, etc. (5 years)	fill in the blank 3f7641fe4f90f95_16	fill in the blank 3f7641fe4f90f95_17	fill in the blank 3f7641fe4f90f95_18
Selling and admin. expenses (5 years)	fill in the blank 3f7641fe4f90f95_19	fill in the blank 3f7641fe4f90f95_20	fill in the blank 3f7641fe4f90f95_21
Income (Loss)	$fill in the blank 3f7641fe4f90f95_22	$fill in the blank 3f7641fe4f90f95_23	$fill in the blank 3f7641fe4f90f95_24

b. Based only on the data presented, should the proposal be accepted?

c. Differences in capacity between the two alternatives is to consider before a final decision is made.

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