BE 24-1 Lease or sell

McFadden Company owns equipment with a cost of $475,000 and accumulated depreciation of $280,000 that can be sold for $175,000, less a 7% sales commission. Alternatively, McFadden Company can lease the equipment for four years for a total of $180,000, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by McFadden Company on the equipment would total $35,500 over the four-year lease. Prepare a differential analysis on February 18 as to whether McFadden Company should lease (Alternative 1) or sell (Alternative 2) the equipment.

BE 24-2 Discontinue a segment

Product AG52 has revenue of $748,000, variable cost of goods sold of $640,000, variable selling expenses of $90,000, and fixed costs of $50,000, creating a loss from operations of $32,000. Prepare a differential analysis as of October 7 to determine if Product AG52 should be continued (Alternative 1) or discontinued (Alternative 2), assuming fixed costs are unaffected by the decision.

BE 24-3 Make or buy

A company manufactures various-sized plastic bottles for its medicinal product. The manufacturing cost for small bottles is $75 per unit (100 bottles), including fixed costs of $28 per unit. A proposal is offered to purchase small bottles from an outside source for $40 per unit, plus $4 per unit for freight. Prepare a differential analysis dated July 31 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the bottles, assuming fixed costs are unaffected by the decision.

BE 24-4 Replace equipment

A machine with a book value of $80,000 has an estimated five-year life. A proposal is offered to sell the old machine for $50,500 and replace it with a new machine at a cost of $75,000. The new machine has a five-year life with no residual value. The new machine would reduce annual direct labor costs from $11,200 to $7,400. Prepare a differential analysis dated April 11 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2).

BE 24-5 Process or sell

Product J19 is produced for $11 per gallon. Product J19 can be sold without additional processing for $18 per gallon, or processed further into Product R33 at an additional cost of $7 per gallon. Product R33 can be sold for $24 per gallon. Prepare a differential analysis dated April 30 on whether to sell Product J19 (Alternative 1) or process further into Product R33 (Alternative 2).

BE 24-6 Accept business at a special price

Product A is normally sold for $9.60 per unit. A special price of $7.20 is offered for the export market. The variable production cost is $5.00 per unit. An additional export tariff of 15% of revenue must be paid for all export products. Assume there is sufficient capacity for the special order. Prepare a differential analysis dated March 16 on whether to reject (Alternative 1) or accept (Alternative 2) the special order.