Bundle: Managerial Accounting, Loose-leaf Version, 14th - Book Only
14th Edition
ISBN: 9781337541398
Author: Carl Warren; James M. Reeve; Jonathan Duchac
Publisher: Cengage Learning
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Chapter 10, Problem 10E
Differential analysis for machine replacement
Kim Kwon Digital Components Company assembles circuit hoards by using a manually operated machine to insert electronic components. The original cost of the machine is $60,000, the
| Present Operations | Proposed Operations | |
| Sales | $205,000 | $205,000 |
| Direct materials | $ 72,000 | $ 72,000 |
| Direct labor | 51,000 | — |
| Power and maintenance | 5,000 | 18,000 |
| Taxes, insurance, etc. | 1,500 | 4,000 |
| Selling and administrative expenses | 45,000 | 45,000 |
| Total expenses | $174,500 | $139,000 |
- A. Prepare a differential analysis dated May 4 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. Prepare the analysis over the useful life of the new machine.
- B. Based only on the data presented, should the proposal be accepted?
- C. What are some of the other factors that should be considered before a final decision is made?
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Differential Analysis for Machine Replacement
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 $60,000, the accumulated depreciation is $24,000, 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 $180,000. 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
$205,000
$205,000
Direct materials
$72,000
$72,000
Direct labor
51,000
—
Power and maintenance
5,000
18,000
Taxes, insurance, etc.
1,500
4,000
Selling and administrative expenses…
Differential Analysis for Machine Replacement
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 $60,000, the accumulated depreciation is $24,000, 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 $180,000. 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
Proposed
Operations
Operations
Sales
$205,000
$205,000
Direct materials
$72,000
$72,000
Direct labor
51,000
Power and maintenance
5,000
18.000
Taxes, insurance, etc.
1,500
4,000
Selling and administrative expenses
45,000
45,000
Total expenses
$174,500…
Differential Analysis for Machine Replacement
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 $88,800, the accumulated depreciation is $35,500, its remaining useful life is 5 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 $184,700. The automatic machine has an estimated useful life of 5 years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations:
PresentOperations
ProposedOperations
Sales
$281,500
$281,500
Direct materials
$95,900
$95,900
Direct labor
66,600
—
Power and maintenance
6,200
32,900
Taxes, insurance, etc.
2,200
7,400
Selling and administrative expenses
66,600…
Chapter 10 Solutions
Bundle: Managerial Accounting, Loose-leaf Version, 14th - Book Only
Ch. 10 - Explain the meaning of (A) differential revenue,...Ch. 10 - A company could sell a building for 250,000 or...Ch. 10 - A chemical company has a commodity-grade and...Ch. 10 - A company accepts incremental business at a...Ch. 10 - Prob. 5DQCh. 10 - Prob. 6DQCh. 10 - Prob. 7DQCh. 10 - Although the cost-plus approach to product pricing...Ch. 10 - How does the target cost method differ from...Ch. 10 - Prob. 10DQ
Ch. 10 - Prob. 1BECh. 10 - Prob. 2BECh. 10 - Prob. 3BECh. 10 - Replace equipment A machine with a book value of...Ch. 10 - Prob. 5BECh. 10 - Prob. 6BECh. 10 - Prob. 7BECh. 10 - Prob. 8BECh. 10 - Prob. 1ECh. 10 - Prob. 2ECh. 10 - Prob. 3ECh. 10 - Prob. 4ECh. 10 - Prob. 5ECh. 10 - Prob. 6ECh. 10 - Prob. 7ECh. 10 - Prob. 8ECh. 10 - Prob. 9ECh. 10 - Differential analysis for machine replacement Kim...Ch. 10 - Sell or process further Calgary Lumber Company...Ch. 10 - Prob. 12ECh. 10 - Prob. 13ECh. 10 - Prob. 14ECh. 10 - Prob. 15ECh. 10 - Prob. 16ECh. 10 - Product cost method of product costing Smart...Ch. 10 - Target costing Toyota Motor Corporation (TM) uses...Ch. 10 - Prob. 19ECh. 10 - Prob. 20ECh. 10 - Product decisions under bottlenecked operations...Ch. 10 - Total cost method of product pricing Based on the...Ch. 10 - Variable cost method of product pricing Based on...Ch. 10 - Differential analysis involving opportunity costs...Ch. 10 - Differential analysis for machine replacement...Ch. 10 - Differential analysis for sales promotion proposal...Ch. 10 - Prob. 4PACh. 10 - Product pricing using the cost-plus approach...Ch. 10 - Product pricing and profit analysis with...Ch. 10 - Prob. 1PBCh. 10 - Differential analysis for machine replacement...Ch. 10 - Prob. 3PBCh. 10 - Prob. 4PBCh. 10 - Prob. 5PBCh. 10 - Prob. 6PBCh. 10 - Service yield pricing and differential equations...Ch. 10 - Prob. 2ADMCh. 10 - Prob. 3ADMCh. 10 - Aaron McKinney is a cost accountant for Majik...Ch. 10 - Prob. 3TIF
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