A company is considering replacing an old piece of machinery, which cost $617,500 and has $359,600 of accumulated depreciation to date, with a new machine that has a purchase price of $573,500. The old machine could be sold for $250,500. The annual variable production costs associated with the old machine are estimated to be $61,050 per year for eight years. The annual variable production costs for the new machine are estimated to be $18,150 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. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.

Differential Analysis

Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2)

1		Continue with Old Machine	Replace Old Machine	Differential Effect on Income
2		(Alternative 1)	(Alternative 2)	(Alternative 2)
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B. Determine whether the company should continue with (Alternative 1) or replace (Alternative 2) the old machine.

Replace the old machine

Continue with old machine

C. What is the sunk cost in this situation?

Book value of the old machine

Cost of the new machine

Future variable production costs