Lexigraphic Printing Company is considering replacing a machine that has been used in its factory for 4 yrs. 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 yr life 89,000

Annual depreciation (straight line) 8,900

Annual manufacturing costs, excluding depreciation 23,600

Annual nonmanufacturing operating expenses 6,100

Annual revenue 74,200

Current estimated selling price of machine 29,700

NEW MACHINE

Purchase price of machine, six yr life 119,700

Annual depreciation (straight line) 19,950

Estimated annual manufacturing costs, excluding depreciation 6,900

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

1. See template Prepare a differential analysis as of April 30 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 yr period if the new machine is acquired.

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

1. Differential Analysis

Continue with Old Machine or Replace with New Machine

April 30

Continue with

Replace

Differential Effect

Old Machine

Old Machine

on Income

(Alternative 1)

(Alternative 2)

(Alternative 2)

Revenues:

Proceeds from sale of old machine

Costs:

Purchase price

Annual manufacturing costs (6 yrs.)

Income (loss)

The proposal to replace the machine should be

accepted

Essay answer here...

2.