Machine Replacement Decision

A company is considering replacing an old piece of machinery, which cost $601,800 and has $347,900 of accumulated depreciation to date, with a new machine that has a purchase price of $485,500. The old machine could be sold for $61,500. The annual variable production costs associated with the old machine are estimated to be $158,600 per year for eight years. The annual variable production costs for the new machine are estimated to be $100,200 per year for eight years.

a.1 Prepare a differential analysis dated May 29 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 Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) May 29

	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effects (Alternative 2)
Revenues:
Proceeds from sale of old machine	$fill in the blank 20f179047008012_1	$fill in the blank 20f179047008012_2	$fill in the blank 20f179047008012_3
Costs:
Purchase price	fill in the blank 20f179047008012_4	fill in the blank 20f179047008012_5	fill in the blank 20f179047008012_6
Variable productions costs (8 years)	fill in the blank 20f179047008012_7	fill in the blank 20f179047008012_8	fill in the blank 20f179047008012_9
Profit (Loss)	$fill in the blank 20f179047008012_10	$fill in the blank 20f179047008012_11	$fill in the blank 20f179047008012_12

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

Continue with the old machineReplace the old machine

b. What is the sunk cost in this situation?

The sunk cost is $fill in the blank 0140e8fac03f00f_1.