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 $92,600, the accumulated depreciation is $37,000, its remaining useful life is 5 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 $192,600. The automatic machine has an estimated useful life of 5 years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations:

	Present Operations		Proposed Operations
Sales	$293,500		$293,500
Direct materials	$100,000		$100,000
Direct labor	69,500
Power and maintenance	6,500		34,300
Taxes, insurance, etc.	2,300		7,700
Selling and administrative expenses	69,500		69,500
Total expenses	$247,800		$211,500

Question Content Area

a. Prepare a differential analysis dated May 4 to determine whether to Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2). Prepare the analysis over the useful life of the new machine. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effects (Alternative 2)
Revenues:
Sales (5 years)		$fill in the blank ecb09204b02107b_2	$fill in the blank ecb09204b02107b_3
Costs:
Purchase price	fill in the blank ecb09204b02107b_4	fill in the blank ecb09204b02107b_5	fill in the blank ecb09204b02107b_6
Direct materials (5 years)	fill in the blank ecb09204b02107b_7	fill in the blank ecb09204b02107b_8	fill in the blank ecb09204b02107b_9
Direct labor (5 years)	fill in the blank ecb09204b02107b_10	fill in the blank ecb09204b02107b_11	fill in the blank ecb09204b02107b_12
Power and maintenance (5 years)	fill in the blank ecb09204b02107b_13	fill in the blank ecb09204b02107b_14	fill in the blank ecb09204b02107b_15
Taxes, insurance, etc. (5 years)	fill in the blank ecb09204b02107b_16	fill in the blank ecb09204b02107b_17	fill in the blank ecb09204b02107b_18
Selling and admin. expenses (5 years)	fill in the blank ecb09204b02107b_19	fill in the blank ecb09204b02107b_20	fill in the blank ecb09204b02107b_21
Profit (loss)	$fill in the blank ecb09204b02107b_22	$fill in the blank ecb09204b02107b_23	$fill in the blank ecb09204b02107b_24

Question Content Area

b. Based only on the data presented, should the proposal be accepted?

Should be acceptedShould not be accepted

c. Differences in capacity between the two alternatives is

relevantnot relevant

to consider before a final decision is made.