close solutoin list

Replace equipment A machine with a book value of $80,000 has an estimated five-year life. A proposal is offered to sell the old machine for $50,500 and replace it with a new machine at a cost of $75,000. The new machine has a five-year life with no residual value. The new machine would reduce annual direct labor costs from $11,200 to $7,400. Prepare a differential analysis dated April 11 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2).

BuyFind

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 25.4BPE
Textbook Problem

Replace equipment

A machine with a book value of $80,000 has an estimated five-year life. A proposal is offered to sell the old machine for $50,500 and replace it with a new machine at a cost of $75,000. The new machine has a five-year life with no residual value. The new machine would reduce annual direct labor costs from $11,200 to $7,400. Prepare a differential analysis dated April 11 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2).

Expert Solution
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.

Explanation of Solution

A company has two alternatives to either continue with an old machine or to sell the old machine for $50,500 and get it replaced with a new machine for $75,000. The company would incur the labor charges of $56,000 for 5 years on continuing with the old machine and the labor charges of $37,000 for 5 years on replacing the old machine. This clearly shows an increase in the costs by $5,500 if the company replaces the machine instead of continuing it; hence the old machine should be continued.

Working Note:

Calculate the direct labor for 5 years on continuing with the old machine...

Want to see this answer and more?

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

See solution

Chapter 25 Solutions

Accounting
Show all chapter solutions
Ch. 25 - Under what conditions might a company use...Ch. 25 - Lease or sell Duncan Company owns a machine with a...Ch. 25 - Lease or sell Timberlake Company owns equipment...Ch. 25 - Discontinue a segment Product Alpha has revenue of...Ch. 25 - Discontinue a segment Product B has revenue of...Ch. 25 - Make or buy A restaurant bakes its own bread for a...Ch. 25 - Make or buy A company manufactures various sized...Ch. 25 - Replace equipment A machine with a book value of...Ch. 25 - Replace equipment A machine with a book value of...Ch. 25 - Process or sell Product K is produced for 155 per...Ch. 25 - Process or sell Product D is produced for 24 per...Ch. 25 - Accept business at special price Product AA is...Ch. 25 - Accept business at special price Product A is...Ch. 25 - Product cost markup percentage Light force Inc....Ch. 25 - Product cost markup percentage Green Thumb Garden...Ch. 25 - Bottleneck profit Product A has a unit...Ch. 25 - Bottleneck profit Product K has a unit...Ch. 25 - Activity-based costing Mainline Marine Company has...Ch. 25 - Activity-based costing Casual Cuts Inc. has total...Ch. 25 - Differential analysis for a lease-or-sell decision...Ch. 25 - Differential analysis for a lease-or-buy decision...Ch. 25 - Differential analysis for a discontinued product A...Ch. 25 - Differential analysis for a discontinued product...Ch. 25 - Segment analysis for a service company Charles...Ch. 25 - Decision to discontinue a product On the basis of...Ch. 25 - Make or buy decision Diamond Computer Company has...Ch. 25 - Make-or-buy decision for a service company The...Ch. 25 - Machine replacement decision A company is...Ch. 25 - Differential analysis for machine replacement Kim...Ch. 25 - Sell or process further Big Fork Lumber Company...Ch. 25 - Sell or process further Rise N Shine Coffee...Ch. 25 - Decision on accepting additional business...Ch. 25 - Accepting business at a special price Portable...Ch. 25 - Dedsion on accepting additional business...Ch. 25 - Accepting business at a special price for a...Ch. 25 - Product cost concept of product pricing La Femme...Ch. 25 - Product cost concept of product costing Smart...Ch. 25 - Target costing Toyota Motor Corporation uses...Ch. 25 - Target costing Instant Image Inc. manufactures...Ch. 25 - Product decisions under bottlenecked operations...Ch. 25 - Product decisions under bottlenecked operations...Ch. 25 - Activity-based costing CardioTrainer Equipment...Ch. 25 - Activity-based costing Zeus Industries...Ch. 25 - Activity rates and product costs using...Ch. 25 - Total cost concept of product pricing Based on the...Ch. 25 - Variable cost concept of product pricing Based on...Ch. 25 - Differential analysis involving opportunity costs...Ch. 25 - Differential analysis for machine replacement...Ch. 25 - Differential analysis for sales promotion proposal...Ch. 25 - Differential analysis for further processing The...Ch. 25 - Product pricing using the cost-plus approach...Ch. 25 - Product pricing and profit analysis with...Ch. 25 - Activity-based costing Pure Cane Sugar Company...Ch. 25 - Differential analysis involving opportunity costs...Ch. 25 - Differential analysis for machine replacement...Ch. 25 - Differential analysis for sales promotion proposal...Ch. 25 - Differential analysis for further processing The...Ch. 25 - Product pricing using the cost-plus approach...Ch. 25 - Product pricing and profit analysis with...Ch. 25 - Activity-based costing Southeastern Paper Company...Ch. 25 - Ethics in Action Aaron McKinney is a cost...Ch. 25 - Communication The following conversation took...Ch. 25 - Decision on accepting additional business A...Ch. 25 - Accept business at a special price for a service...Ch. 25 - Identifying product cost distortion Peachtree...

Additional Business Textbook Solutions

Find more solutions based on key concepts
Show solutions
Describe the three approaches to performance feedback interviews.

Foundations of Business (MindTap Course List)

LO4 Purchases returns and allowances are recorded in the general journal.

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

Why are accruals called spontaneous sources of funds, what are their costs, and why dont firms use more of them...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

What is ISO 9000? Why do so many companies want this certification?

Cornerstones of Cost Management (Cornerstones Series)