Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Differential Analysisfor Machine Replacement Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost

Differential Analysisfor Machine Replacement

Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $60,000, the accumulated depreciation is $24,000, its remaining useful life is five years, and its residual value is negligible. On May 4, 2014, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that will cost $180,000. 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:

Hide

a. Prepare a differential analysis dated May 4, 2014, 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 zero "0".

Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
May 4, 2014
Continue with Old Machine (Alternative 1)
Replace Old Machine (Alternative 2)
Differential Effect on Income (Alternative 2)
Revenues:
Sales (5 years)
$
$
$
Costs:
Purchase price
Direct materials (5 years)
Direct labor (5 years)
Power and maintenance (5 years)
Taxes, insurance, etc. (5 years)
Selling and admin. expenses (5 years)
Income (Loss)
$
$
$

Hide Feedback Partially Correct Check My Work Feedback

a. FollowExample Exercise 24-4. For the continue and replace alternatives subtract the costs from the revenues. Multiply the sales and costs for the five year life. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 2 from alternative 1.

Learning Objective 1.

b. Based only on the data presented, should the proposal be accepted? SelectShould be acceptedShould not be acceptedCorrect 1 of Item 2

c. Differences in capacity between the two alternatives isSelectrelevantnot relevantCorrect 2 of Item 2to consider before a final decision is made.

Hide Feedback Correct Check My Work Feedback

b. Which alternative has the most desirable effect on income?

c. What is the effect of each alternative on the capacity, the opportunity costs, and taxes?

Learning Objective 1.

image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Operational Risk Management

Authors: Mark D Abkowitz

1st Edition

0470256982, 9780470256985

More Books

Students also viewed these Accounting questions

Question

Behaviour: What am I doing?

Answered: 1 week ago