Differential Analysis for Machine Replacement Proposal

Flint Tooling Company is considering replacing a machine that has been used in its factory for four years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows:

Old Machine
Cost of machine, ten-year life	$109,400
Annual depreciation (straight-line)	10,940
Annual manufacturing costs, excluding depreciation	38,900
Annual nonmanufacturing operating expenses	13,000
Annual revenue	95,200
Current estimated selling price of the machine	36,700
New Machine
Cost of machine, six-year life	$138,600
Annual depreciation (straight-line)	23,100
Estimated annual manufacturing costs, exclusive of depreciation	18,500

Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.

Required:

Question Content Area

1. Prepare a differential analysis as of November 8 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the differential profit that would result over the six-year period if the new machine is acquired. 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) November 8

	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 c33480fa9ff1fe8_1	$fill in the blank c33480fa9ff1fe8_2	$fill in the blank c33480fa9ff1fe8_3
Costs
Purchase price	fill in the blank c33480fa9ff1fe8_4	fill in the blank c33480fa9ff1fe8_5	fill in the blank c33480fa9ff1fe8_6
Annual manufacturing costs (6 yrs.)	fill in the blank c33480fa9ff1fe8_7	fill in the blank c33480fa9ff1fe8_8	fill in the blank c33480fa9ff1fe8_9
Profit (loss)	$fill in the blank c33480fa9ff1fe8_10	$fill in the blank c33480fa9ff1fe8_11	$fill in the blank c33480fa9ff1fe8_12

Question Content Area

2. What other factors should be considered before a final decision is reached?

Are there any improvements in the quality of work turned out by the new machine?

What opportunities are available for the use of the funds required to purchase the new machine?

Are there any improvements in the quality of work turned out by the new machine and what opportunities are available for the use of the funds required to purchase the new machine?

What affect would this decision have on employee morale?

None of these choices are correct.

abcde