Evaluating a decision to purchase equipment. The Engineering Department of the Ettinger Company has recommended a change in production methods. The change involves the purchase of a machine for $135,000. A study of operating costs under the existing and proposed methods was made. The estimated annual operating costs that differ under the two methods are as follows.
The new equipment has an 8-year useful life with no scrap value.

Instructions 1. Compute the difference in annual net income if the proposed change in production methods is made. Assume that sales will not change and that the only additional fixed cost will be depreciation on the new machine.
2. List other factors that should be considered in making the decision.

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Current Proposed Method Method Labor $96,500 $68,500 Supervision 7,500 7,500 Power 98,500 92,000 Maintenance 9,500 5,000