Machine Replacement Decision

A company is considering replacing an old piece of machinery, which cost $600,700 and has $347,400 of accumulated depreciation to date, with a new machine that has a purchase price of $483,700. The old machine could be sold for $62,700. The annual variable production costs associated with the old machine are estimated to be $156,500 per year for eight years. The annual variable production costs for the new machine are estimated to be $98,900 per year for eight years.

a.1 Prepare a differential analysis dated September 13, to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
September 13
	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues:
Proceeds from sale of old machine	$fill in the blank eff4ff083fa1058_1	$fill in the blank eff4ff083fa1058_2	$fill in the blank eff4ff083fa1058_3
Costs:
Purchase price	fill in the blank eff4ff083fa1058_4	fill in the blank eff4ff083fa1058_5	fill in the blank eff4ff083fa1058_6
Variable productions costs (8 years)	fill in the blank eff4ff083fa1058_7	fill in the blank eff4ff083fa1058_8	fill in the blank eff4ff083fa1058_9
Income (Loss)	$fill in the blank eff4ff083fa1058_10	$fill in the blank eff4ff083fa1058_11	$fill in the blank eff4ff083fa1058_12

a.2 Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.

b. What is the sunk cost in this situation?

The sunk cost is the $fill in the blank bbe9cff43037059_1.