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1st pic 2nd pic Differential Analysis for Machine Replacement Proposal Franklin Printing Company is considering replacing a machine that has been used in its factory
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Differential Analysis for Machine Replacement Proposal Franklin Printing Company is considering replacing a machine that has been used in its factory for four years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows: Old Machine Cost of machine, ten-year life $107,300 10,730 Annual depreciation (straight-line) Annual manufacturing costs, excluding depreciation Annual nonmanufacturing operating expenses 39,100 11,700 Annual revenue 95,400 Current estimated selling price of the machine 36,700 New Machine Cost of machine, six-year life $139,200 Annual depreciation (straight-line) 23,200 Estimated annual manufacturing costs, exclusive of depreciation 18,600 Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine. Required: 1. Prepare a differential analysis as of November 8 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the differential profit that would result over the six-year period if the new machine is acquired. If 1. Prepare a differential analysis as of November 8 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the differential profit that would result over the six-year period if the new machine is acquired. 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) November 8 Continue with Replace Differential Old Machine Old Machine Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Proceeds from sale of old machine $ 0 36,700 36,700 Costs Purchase price 0 -139,200 - 139,200 Annual manufacturing costs (6 yrs.) -234,600 111,600 123,000 Profit (loss) -234,600 $ 2. What other factors should be considered before a final decision is reached? a. Are there any improvements in the quality of work turned out by the new machine? b. What opportunities are available for the use of the funds required to purchase the new machine? c. Are there any improvements in the quality of work turned out by the new machine and what opportunities are available for the use of the funds required to purchase the new machine? d. What affect would this decision have on employee morale? e. None of these choices are correctStep by Step Solution
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