Machine Replacement Decision

A company is considering replacing an old piece of machinery, which cost $600,000 and has $350,000 of accumulated depreciation to date, with a new machine that costs $528,000. The old machine could be sold for $82,000. The annual variable production costs associated with the old machine are estimated to be $167,000 per year for eight years. The annual variable production costs for the new machine are estimated to be $109,000 per year for eight years.

Prepare a differential analysis dated September 11, 2014, to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter zero "0".

Differential Analysis Continue with Old Machine (Alt. 1)or Replace Old Machine (Alt. 2) September 11,2014 Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effect on Income (Alternative 2) Revenues: Proceeds from sale of old machine 0 82,000 82,000 Costs 528,000 464,000 18000 Purchase price 0 528,000 Variable production costs (8 years) Income (Loss)