Keep or Replace Machine:

Skiles Coporation is a manufacturer of classic rocking chairs. The company has been using a particular sanding and finishing machine for over 10 years and believes that it may be time to replace the machine. The company is trying to decide whether replacing the old machine is a wise economic decision. The company's controller pulled together the following information on the old machine and the new possible replacement machine.

Old Machine:Original cost$444,700 Current accumulated depreciation 307,500 Estimated annual variable manufacturing costs for machine 70,700 Estimated selling price of machine 184,000 Estimated remaining useful life (in years) 6 New Machine:Purchase cost$780,500 Estimated annual variable manufacturing costs for machine 43,100 Estimated residual value 0 Estimated useful life (in years)6

Select the relevant or irrelevant information below:

Annual variable costs of old machine Relevant Selling price of old machine Relevant Matching lives Relevant Purchase price of new machine Relevant Accumulated depreciation of old machine Irrelevant

Fill in the differential analysis.

Replace or Keep Decision

Differential Analysis Report Cost of replacing old machine:$_____Annual differential decrease in cost$_____x number of years$_____Total differential decrease in cost$Proceeds from sale of present machine$_____Cost of new machine$_____Net differential (increase)/decrease in cost, six year total$____