Machine replacement decision

A company is considering replacing an old piece of machinery, which cost $$603,000$ and has $$347,400$ of accumulated depreciation to date, with a new machine that has a purchase price of $$486,600.$ The old machine could be sold for $$64,000.$ The annual variable production costs associated with the old machine are estimated to be $$157,200$ per year for $8$ years. The annual variable production costs for the new machine are estimated to be $$101,900$ per year for $8$ years.

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.

Differential Analysis

Continue with $($Alt$.1)$ or Replace $($Alt$.2)$ Old Machine

December $10$

Line Item Description

Continue with

Old Machine

Replace Old Machine Differential Effects

$($Alternative $1)$

$($Alternative $2)$

$($Alternative $2)$

Revenues:

Proceeds from sale of old machine

$

Costs:

Purchase price

Variable productions costs $(8$ years$)q,$

Profit $($lo