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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

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
Cost of machine, 10-year life $108,100
Annual depreciation (straight-line) 10,810
Annual manufacturing costs, excluding depreciation 38,300
Annual nonmanufacturing operating expenses 12,200
Annual revenue 94,900
Current estimated selling price of the machine 35,100
New Machine
Cost of machine, six-year life $136,800
Annual depreciation (straight-line) 22,800
Estimated annual manufacturing costs, exclusive of depreciation 17,700

Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.

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1. Prepare a differential analysis as of February 28, 2014, 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".

Differential Analysis

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

February 28, 2014

Continue with Old Machine (Alternative 1)

Replace Old Machine (Alternative 2)

Differential Effect on Income (Alternative 2)

Revenues

Proceeds from sale of old machine

$

$

$

Costs

Purchase price

Annual manufacturing costs (6 yrs.)

Income (Loss)

$

$

$

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