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Machine replacement decision A company is considering replacing an old piece of machinery, which cost $105,000 and has $55,000 of accumulated depreciation to dale, with a new machine that has a purchase price of $83,000. The old machine could be sold for $56,300. The annual variable production costs associated with the old machine are estimated to be $8,500 per year for eight years. The annual variable production costs for the new machine are estimated to be $5,000 per year for eight years. a. Prepare a differential analysis dated April 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. b. What is the sunk cost in this situation?

BuyFind

Accounting

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

Accounting

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

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Chapter
Section
Chapter 25, Problem 25.9EX
Textbook Problem

Machine replacement decision

A company is considering replacing an old piece of machinery, which cost $105,000 and has $55,000 of accumulated depreciation to dale, with a new machine that has a purchase price of $83,000. The old machine could be sold for $56,300. The annual variable production costs associated with the old machine are estimated to be $8,500 per year for eight years. The annual variable production costs for the new machine are estimated to be $5,000 per year for eight years.

a. Prepare a differential analysis dated April 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.

b. What is the sunk cost in this situation?

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Chapter 25 Solutions

Accounting
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