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Differential analysis for machine replacement proposal Lexigraphic Printing Company is considering replacing a machine that has been used in its factory for four years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows: Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine. Old Machine Cost of machine, 10-year life $89,000 Annual depreciation (straight-line) 8,900 Annual manufacturing costs, excluding depreciation 23,600 Annual nonmanufacturing operating expenses 6,100 Annual revenue 74,200 Current estimated selling price of machine 29,700 New Machine Purchase price of machine, six-year life $119,700 Annual depreciation (straight-line) 19,950 Estimated annual manufacturing costs, excluding depreciation 6,900 Instructions 1. Prepare a differential analysis as of April 30 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the total differential income that would result over the six-year period if the new machine is acquired. 2. List other factors that should be considered before a final decision is reached.

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Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 25, Problem 25.2APR
Textbook Problem

Differential analysis for machine replacement proposal

Lexigraphic Printing Company is considering replacing a machine that has been used in its factory for four years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows:

Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.

Old Machine
Cost of machine, 10-year life $89,000
Annual depreciation (straight-line) 8,900
Annual manufacturing costs, excluding depreciation 23,600
Annual nonmanufacturing operating expenses 6,100
Annual revenue 74,200
Current estimated selling price of machine 29,700
New Machine  
Purchase price of machine, six-year life $119,700
Annual depreciation (straight-line) 19,950
Estimated annual manufacturing costs, excluding depreciation 6,900

Instructions

1.    Prepare a differential analysis as of April 30 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the total differential income that would result over the six-year period if the new machine is acquired.

2.    List other factors that should be considered before a final decision is reached.

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Chapter 25 Solutions

Accounting
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