A machine with a book value of $$92,000$ has an estimated five$-$year life. A proposal is offered to sell the old machine for $$41,500$ and replace it with a new machine at a cost of $$83,000.$ The new machine has a five$-$year life with no residual value. The new machine would reduce annual direct labor costs from $$11,700$ to $$9,500.$

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.

Open spreadsheet

a$.$ Prepare a differential analysis dated June $2$ on whether to continue with the old machine $($Alternative $1)$ or replace the old machine $($Alternative $2).$ If an amount is zero, enter $"0".$ Use a minus sign to indicate costs, losses, or negative differential effect on income.

Differential Analysis

Continue $($Alt$.1)$ or Replace $($Alt$.2)$ Old Machine

June $2$

Line Item Description 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 $2$

$fill in the blank $3$

$fill in the blank $4$

Costs:

Purchase price fill in the blank $5$

fill in the blank $6$

fill in the blank $7$

Direct labor $(5$ years$)$ fill in the blank $8$

fill in the blank $9$

fill in the blank $10$

Profit $($Loss$)$ $fill in the blank $11$

$fill in the blank $12$

$fill in the blank $13$

b$.$ Should the company continue with the old machine $($Alternative $1)$ or replace the old machine $($Alternative $2)?$