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 $25,890, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $166,615. 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:

1		Present Operations	Proposed Operations
2	Sales	$206,500.00	$206,500.00
3	Direct materials	$73,165.00	$73,165.00
4	Direct labor	49,450.00	0.00
5	Power and maintenance	4,275.00	18,680.00
6	Taxes, insurance, etc.	1,370.00	3,495.00
7	Selling and administrative expenses	43,710.00	43,710.00
8	Total expenses	$171,970.00	$139,050.00

	Required:
A.	Prepare a differential analysis dated May 4 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. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.
B.	Based only on the data presented, should the proposal be accepted?
C.	What other factors should be considered before a final decision is made?

Labels and Amount Descriptions

Labels
Cash flows from investing activities
Costs
May 4
Revenues
Amount Descriptions
Direct labor
Direct materials
Gain on sale of investments
Income (loss)
Loss on sale of investments
Power and maintenance
Purchase price
Sales
Selling and administrative expenses
Taxes, insurance, etc.
Total costs

Differential Analysis

Shaded cells have feedback.

A. Prepare a differential analysis dated May 4 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. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.

Score: 67/147

Differential Analysis

Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2)

1		Continue with Old Machine	Replace Old Machine	Differential Effect on Income
2		(Alternative 1)	(Alternative 2)	(Alternative 2)
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