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 $109,200 Cost of machine, ten-year life Annual depreciation (straight-line) Annual manufacturing costs, excluding depreciation Annual nonmanufacturing operating expenses 10,920 39,300 12,500 Annual revenue 94,800 Current estimated selling price of the machine 36,500 New Machine Cost of machine, six-year life $137,400 Annual depreciation (straight-line) 22,900 Estimated annual manufacturing costs, exclusive of depreciation 19,200 Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine. Required: 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 Replace Differential Old Machine Old Machine Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Proceeds from sale of old machine Costs Purchase price Annual manufacturing costs (6 yrs.) 00 Cher Mara Frem DUCICIO CUITITUCIUT Old Machine Old Machine Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Proceeds from sale of old machine Costs Purchase price Annual manufacturing costs (6 yrs.) Profit (loss) Feedback Check My Work 1. Determine the manufacturing costs to continue with the old machine for six years at the current amount. Determine the manufacturing costs with the replacement machine for six years. Determine the effect of the purchase pr replacement and the sale proceeds of the old machine. Determine the differential effect on income of the revenues, costs, and profit (loss) by subtracting alternative 1 from alternative 2. A 2. What other factors should be considered before a final decision is reached? a. Are there any improvements in the quality of work turned out by the new machine? b. What opportunities are available for the use of the funds required to purchase the new machine? c. 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? d. What affect would this decision have on employee morale? e. None of these choices are correct. Feedback Check My Work 2. What are the benefits of the new machine? What are the tax implications of a purchase? Are there any opportunity costs? Feedback 7 Check My Work