All Bookmar

Machine Replacement Decision

A company is considering replacing an old piece of machinery, which cost $$675,000$ and has $$380,000$ of accumulated depreciation to date, with a new machine that has a purchase price of $$825,000.$ The old machine could be sold for $$300,000.$ The annual variable production costs associated with the old machine are estimated to be $$85,000$ per year for $8$ years. The annual variable production costs for the new machine are estimated to be $$25,000$ per year for $8$ years.

a$.1$ Prepare a differential analysis dated December $10$ 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 $($Alt$.1)$ or Replace $($Alt$.2)$ Old Machine

December $10$

Continue with

Line Item Description

Old Machine

Replace$-$Old Machine

Differential Effects

$($Alternative $1)$

$($Alternative $2)$

$($Alternative $2)$

Revenues:

Proceeds from sale of old machine s

Costs:

Purchase price

Variable production costs $(8$ years$)$

Profit $($loss$)$

$

$

Profit $($loss$)$

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