Replace Equipment A machine with a book value of $250,700 has an estimated remaining life of 6 years. A proposal is offered to sell the old machine for $214,100 and replace it with a new machine at a cost of $283,500. The new machine has a 6-year life with no residual value. The new machine would reduce annual direct labor costs from $50,400 to $40,300. a. Prepare a differential analysis dated June 2 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue (Alt. 1) or Replace (Alt. 2) Old Machine June 2 Continue with Old Line Item Description Machine Replace Old Machine Differential Effects (Alternative 2) (Alternative 1) (Alternative 2) Proceeds from sale of old machine $ Revenues: Costs: Purchase price Direct labor (6 years) Profit (loss) A St St A B

Replace Equipment A machine with a book value of $250,700 has an estimated remaining life of 6 years. A proposal is offered to sell the old machine for $214,100 and replace it with a new machine at a cost of $283,500. The new machine has a 6-year life with no residual value. The new machine would reduce annual direct labor costs from $50,400 to $40,300. a. Prepare a differential analysis dated June 2 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue (Alt. 1) or Replace (Alt. 2) Old Machine June 2 Continue with Old Line Item Description Machine Replace Old Machine Differential Effects (Alternative 2) (Alternative 1) (Alternative 2) Proceeds from sale of old machine $ Revenues: Costs: Purchase price Direct labor (6 years) Profit (loss) A St St A B

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 4BE: Replace equipment A machine with a book value of 80,000 has an estimated five-year life. A proposal...

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Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
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