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Differential Analysis for Machine Replacement Proposal Franklin Printing Company is considering replacing a machine that has been used in its factory for four years. Relevant
Differential Analysis for Machine Replacement Proposal Franklin Printing 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 $106,800 10,680 Cost of machine, 10-year life Annual depreciation (straight-line) Annual manufacturing costs, excluding depreciation Annual nonmanufacturing operating expenses 38,300 11,800 Annual revenue 95,500 Current estimated selling price of the machine 36,900 New Machine Cost of machine, six-year life $135,600 Annual depreciation (straight-line) 22,600 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 total differential income that would result over the six-year period if the new machine is acquired. If an amount is zero, enter zero "0". 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 Effect Old Machine Old Machine on Income (Alternative 1) (Alternative 2) (Alternative 2) Revenues Proceeds from sale of old machine Costs Purchase price Annual manufacturing costs (6 yrs.) Income (Loss) 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 is correct
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