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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 Cost of machine, ten-year life $108,700 Annual depreciation (straight-line) 10,870 Annual manufacturing costs, excluding depreciation 39,400 Annual nonmanufacturing operating expenses 12,200 Annual revenue 94,000 35,500 Current estimated selling price of the machine New Machine Cost of machine, six-year life $136,200 Annual depreciation (straight-line) 22,700 Estimated annual manufacturing costs, exclusive of depreciation 18,600 Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine. s of November 8 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate 1. Prepare a differential analysis indicate subtracted amounts, negative amounts, the total differential income that would result over the six-year period if the new machine is acquired. If an amount is zero, enter "O". Use a minus sign or a loss. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effect on Income (Altemative 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 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
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