Question
Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $599,700 and has $347,100 of accumulated depreciation to date, with
Machine Replacement Decision
A company is considering replacing an old piece of machinery, which cost $599,700 and has $347,100 of accumulated depreciation to date, with a new machine that has a purchase price of $483,900. The old machine could be sold for $64,500. The annual variable production costs associated with the old machine are estimated to be $155,100 per year for 8 years. The annual variable production costs for the new machine are estimated to be $99,500 per year for 8 years.
Question Content Area
a.1 Prepare a differential analysis dated December 10 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
Line Item Description | Continue with Old Machine (Alternative 1) | Replace Old Machine (Alternative 2) | Differential Effects (Alternative 2) |
---|---|---|---|
Revenues: | |||
Proceeds from sale of old machine | $Proceeds from sale of old machine | $Proceeds from sale of old machine | $Proceeds from sale of old machine |
Costs: | |||
Purchase price | Purchase price | Purchase price | Purchase price |
Variable productions costs (8 years) | Variable productions costs (8 years) | Variable productions costs (8 years) | Variable productions costs (8 years) |
Profit (loss) | $Profit (loss) | $Profit (loss) | $Profit (loss) |
Feedback Area
Feedback
Question Content Area
a.2 Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.
Continue with the old machineReplace the old machineReplace the old machine
Feedback Area
Feedback
Question Content Area
b. What is the sunk cost in this situation? The sunk cost is fill in the blank 1 of 1$.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started