INCLUDES ATTACHED FILES.

Catalina Tooling Company is considering replacing a machine that has been used in its factory for two 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 $75,000

Annual depreciation (straight-line) 7,500

Annual manufacturing costs, excluding depreciation 33,150

Annual non manufacturing operating expenses 10,000

Annual revenue 60,000

Current estimated selling price of the machine 24,000

New Machine

Cost of machine, eight-year life $90,000

Annual depreciation (straight-line) 11,250

Estimated annual manufacturing costs,

exclusive of depreciation 18,200

Annual non manufacturing operating expenses 10,000

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

Instructions

1. Prepare a differential analysis report comparing operations utilizing the new machine with operations using the present equipment. The analysis should indicate the differential income that would result over the eight-year period if the new machine is acquired.

2. List other factors that should be considered before a final decision is reached.

Problem 12-2 Name: Section: Score: 0% Key Code: 2 Instructions Answers are entered in the cells with gray backgrounds. Cells with non-gray backgrounds are protected and cannot be edited. A red asterisk (*) will appear immediately to the right of an incorrect answer. 1. CATALINA TOOLING COMPANY Proposal to Replace Machine Annual manufacturing costs associated with present machine Annual manufacturing costs associated with proposed new machine Annual reduction in manufacturing costs Number of years applicable Cost reduction attributable to difference in manufacturing costs Proceeds from sale of present machine Total Cost of new machine Differential income anticipated from replacement, 6-year total 2. Should the proposal to replace the machine be accepted? Indicate which of the following questions are important in determining whether the proposal should be accepted and the old machine replaced. Important? What is the amount of fixed supervisory costs incurred in the production process? What are the federal tax effects? What else could be done with the funds that will be spent on the proposal? Is quality improved by using the new machinery? Will the change enhance our ability to adapt to future changes in products, materials, etc.? posal should be Important