Differential Analysis : Differential analysis refers to the analysis of differential revenue that could be gained or differential cost that could be incurred from the available alternative options of business. To Prepare: The differential analysis to decide whether to continue with the old machine or to replace it.

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Chapter 25, Problem 25.4APE

To determine

Differential Analysis: Differential analysis refers to the analysis of differential revenue that could be gained or differential cost that could be incurred from the available alternative options of business.

To Prepare: The differential analysis to decide whether to continue with the old machine or to replace it.

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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…

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 Line Item Description June 2 Continue with Old Machine Replace Old Differential Machine Effects (Alternative 2) (Alternative 1) (Alternative 2) Revenues: Proceeds from sale of old machine 0.00 $ 214,100 214,100 Costs: Purchase price Direct labor (6 years) Profit (loss) $ 0.00 -283,500 -283,500 302,400 241,800 60,600 -302,400 St 0 X B