Question
100%
Replace Equipment
A machine with a book value of $251,000 has an estimated six-year life. A proposal is offered to sell the old machine for $216,200 and replace it with a new
machine at a cost of $283,00o. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from
$50,000 to $40,000.
Prepare a differential analysis dated October 3 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). If an
amount is zero, enter "O". 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)
October 3
Differential Effect
on Income
(Alternative 2)
Continue with
Old Machine
(Alternative 1) (Alternative 2)
Replace Old
Machine
Revenues:
Proceeds from sale of old machine
Costs:
Purchase price
Direct labor (6 years)
$
Continue with the old machine
Replace the old machine
with the old machine (Alternative 1) or replace the old machine (Alternative 2)?
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Transcribed Image Text:Replace Equipment A machine with a book value of $251,000 has an estimated six-year life. A proposal is offered to sell the old machine for $216,200 and replace it with a new machine at a cost of $283,00o. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from $50,000 to $40,000. Prepare a differential analysis dated October 3 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). If an amount is zero, enter "O". 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) October 3 Differential Effect on Income (Alternative 2) Continue with Old Machine (Alternative 1) (Alternative 2) Replace Old Machine Revenues: Proceeds from sale of old machine Costs: Purchase price Direct labor (6 years) $ Continue with the old machine Replace the old machine with the old machine (Alternative 1) or replace the old machine (Alternative 2)?
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