11.4

A company is considering replacing an old piece of machinery, which cost $602,100 and has $351,300 of accumulated depreciation to date, with a new machine that has a purchase price of $486,200. The old machine could be sold for $63,600. The annual variable production costs associated with the old machine are estimated to be $156,300 per year for eight years. The annual variable production costs for the new machine are estimated to be $98,600 per year for eight years.

a.1 Prepare a differential analysis dated May 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.

Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
May 29
	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effects (Alternative 2)
Revenues:
Proceeds from sale of old machine	$___	$____	$___
Costs:
Purchase price	____	____	____
Variable productions costs (8 years)	___	____	___
Profit (Loss)	$____	$___	____

What is the sunk cost in this situation?

The sunk cost is $____