Managerial Accounting
Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
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Machine Replacement Decision
A company is considering replacing an old piece of machinery, which cost $599,200 and has $348,700 of accumulated depreciation to date, with a new machine that has a
purchase price of $483,800. The old machine could be sold for $63,000. The annual variable production costs associated with the old machine are estimated to be $158,400
per year for eight years. The annual variable production costs for the new machine are estimated to be $101,000 per year for eight years.
a. Prepare a differential analysis dated April 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old 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)
April 29
Replace
Old
Machine
(Alternative 1) (Alternative 2) (Alternative 2)
Continue
with Old
Machine
Differential
Effect
on Income
Revenues:
Proceeds from sale of old machine
Costs:
Purchase price
Variable productions costs (8 years)
Income (Loss)
Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.
Continue with the old machine
his situation?
Replace the old machine
expand button
Transcribed Image Text:Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $599,200 and has $348,700 of accumulated depreciation to date, with a new machine that has a purchase price of $483,800. The old machine could be sold for $63,000. The annual variable production costs associated with the old machine are estimated to be $158,400 per year for eight years. The annual variable production costs for the new machine are estimated to be $101,000 per year for eight years. a. Prepare a differential analysis dated April 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old 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) April 29 Replace Old Machine (Alternative 1) (Alternative 2) (Alternative 2) Continue with Old Machine Differential Effect on Income Revenues: Proceeds from sale of old machine Costs: Purchase price Variable productions costs (8 years) Income (Loss) Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. Continue with the old machine his situation? Replace the old machine
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