eBook

Snow ve how

Replace Equipment

A machine with a book value of $$248,600$ has an estimated remaining life of $6$ years. A proposal is offered to sell the old machine for $$216,700$ and replace it with a new machine at a cost of $$280,100.$ The new machine has a $6-$year life with no residual value. The new machine would reduce annual direct labor costs from $$50,700$ to $$40,600.$

a$.$ Prepare a differential analysis dated June $2$ on whether to continue with the old machine $($Alternative $1)$ or replace the old machine $($Alternative $2).$ If an amount is zero, enter $"0".$ If required, use a minus sign to indicate a loss.

Differential Analysis

Continue $($Alt$.1)$ or Replace $($Alt$.2)$ Old Machine

June $2$

$\backslash$table$[[,$Continue,Replace,Differential$],[$Line Item Description,with Old,Old,Effects$],[,$Machine,Machine,$($Alternative $2)]]$

Revenues:

Proceeds from sale of old machine $

Costs:

Purchase price

Direct labor $(6$ years$)$

Profit $($loss$)$

$$ $$ $$

$$

$q,$

b$.$ Should the company continue with the old machine $($Alternative $1)$ or replace the old machine $($Alternative $2)?$