Differential Analysis for Machine Replacement

Boyer Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $67,600, the accumulated depreciation is $27,000, 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 $140,600. 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	$214,300		$214,300
Direct materials	$73,000		$73,000
Direct labor	50,700
Power and maintenance	4,700		25,000
Taxes, insurance, etc.	1,700		5,600
Selling and administrative expenses	50,700		50,700
Total expenses	$180,800		$154,300

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 ae2117fc0075fb1_1	$fill in the blank ae2117fc0075fb1_2	$fill in the blank ae2117fc0075fb1_3
Costs:
Purchase price	fill in the blank ae2117fc0075fb1_4	fill in the blank ae2117fc0075fb1_5	fill in the blank ae2117fc0075fb1_6
Direct materials (5 years)	fill in the blank ae2117fc0075fb1_7	fill in the blank ae2117fc0075fb1_8	fill in the blank ae2117fc0075fb1_9
Direct labor (5 years)	fill in the blank ae2117fc0075fb1_10	fill in the blank ae2117fc0075fb1_11	fill in the blank ae2117fc0075fb1_12
Power and maintenance (5 years)	fill in the blank ae2117fc0075fb1_13	fill in the blank ae2117fc0075fb1_14	fill in the blank ae2117fc0075fb1_15
Taxes, insurance, etc. (5 years)	fill in the blank ae2117fc0075fb1_16	fill in the blank ae2117fc0075fb1_17	fill in the blank ae2117fc0075fb1_18
Selling and admin. expenses (5 years)	fill in the blank ae2117fc0075fb1_19	fill in the blank ae2117fc0075fb1_20	fill in the blank ae2117fc0075fb1_21
Profit (Loss)	$fill in the blank ae2117fc0075fb1_22	$fill in the blank ae2117fc0075fb1_23	$fill in the blank ae2117fc0075fb1_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.