Question
Boyer Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $64,300,
Boyer Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $64,300, the accumulated depreciation is $25,700, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $133,700. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations:
Present Operations | Proposed Operations | |||
Sales | $203,800 | $203,800 | ||
Direct materials | $69,400 | $69,400 | ||
Direct labor | 48,200 | |||
Power and maintenance | 4,500 | 23,800 | ||
Taxes, insurance, etc. | 1,600 | 5,300 | ||
Selling and administrative expenses | 48,200 | 48,200 | ||
Total expenses | $171,900 | $146,700 |
a. Prepare a differential analysis dated May 4 to determine whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). Prepare the analysis over the useful life of the new machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
Differential Analysis | |||
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) | |||
May 4 | |||
Continue with Old Machine (Alternative 1) | Replace Old Machine (Alternative 2) | Differential Effects (Alternative 2) | |
Revenues: | |||
Sales (5 years) | $fill in the blank 3da819fe7f9af84_1 | $fill in the blank 3da819fe7f9af84_2 | $fill in the blank 3da819fe7f9af84_3 |
Costs: | |||
Purchase price | fill in the blank 3da819fe7f9af84_4 | fill in the blank 3da819fe7f9af84_5 | fill in the blank 3da819fe7f9af84_6 |
Direct materials (5 years) | fill in the blank 3da819fe7f9af84_7 | fill in the blank 3da819fe7f9af84_8 | fill in the blank 3da819fe7f9af84_9 |
Direct labor (5 years) | fill in the blank 3da819fe7f9af84_10 | fill in the blank 3da819fe7f9af84_11 | fill in the blank 3da819fe7f9af84_12 |
Power and maintenance (5 years) | fill in the blank 3da819fe7f9af84_13 | fill in the blank 3da819fe7f9af84_14 | fill in the blank 3da819fe7f9af84_15 |
Taxes, insurance, etc. (5 years) | fill in the blank 3da819fe7f9af84_16 | fill in the blank 3da819fe7f9af84_17 | fill in the blank 3da819fe7f9af84_18 |
Selling and admin. expenses (5 years) | fill in the blank 3da819fe7f9af84_19 | fill in the blank 3da819fe7f9af84_20 | fill in the blank 3da819fe7f9af84_21 |
Profit (Loss) | $fill in the blank 3da819fe7f9af84_22 | $fill in the blank 3da819fe7f9af84_23 | $fill in the blank 3da819fe7f9af84_24 |
b. Based only on the data presented, should the proposal be accepted?
c. Differences in capacity between the two alternatives is to consider before a final decision is made.
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