A company is considering replacing an old piece of machinery, which cost $602,800 and has $347,700 of accumulated depreciation to date, with a new machine that has a purchase price of $484,400. The old machine could be sold for $64,200. The annual variable production costs associated with the old machine are estimated to be $158,600 per year for 8 years. The annual variable production costs for the new machine are estimated to be $100,600 per year for 8 years.

Question Content Area

a. Prepare a differential analysis dated April 29 to determine whether to Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effects (Alternative 2)
Revenues:
Proceeds from sale of old machine	$fill in the blank f5d047fe4fe6016_1	$fill in the blank f5d047fe4fe6016_2	$fill in the blank f5d047fe4fe6016_3
Costs:
Purchase price	fill in the blank f5d047fe4fe6016_4	fill in the blank f5d047fe4fe6016_5	fill in the blank f5d047fe4fe6016_6
Variable productions costs (8 years)	fill in the blank f5d047fe4fe6016_7	fill in the blank f5d047fe4fe6016_8	fill in the blank f5d047fe4fe6016_9
Income (Loss)	$fill in the blank f5d047fe4fe6016_10	$fill in the blank f5d047fe4fe6016_11	$fill in the blank f5d047fe4fe6016_12

Question Content Area

Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.

Continue with the old machineReplace the old machine

Question Content Area

b. What is the sunk cost in this situation?

The sunk cost is $fill in the blank bfd487fae013ff1_1.