Machine Replacement Decision

A company is considering replacing an old piece of machinery, which cost $$601,000$ and has $$349,000$ of accumulated depreciation to date, with a new machine that has a purchase price of $$485,000.$ The old machine could be sold for $$63,900.$ The annual variable production costs associated with the old machine are estimated to be $$156,700$ per year for $8$ years. The annual variable production costs for the new machine are estimated to be $$102,000$ per year for $8$ years.

a$.$ Prepare a differential analysis dated April $29$ to determine whether to Continue with Old Machine $($Alternative $1)$ or Replace Old Machine $($Alternative $2).$ 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$.2)$

April $29$

$\backslash$table$[[,$April $29,,],[$s$,\backslash$table$[[$Continue$],[$with Old$],[$Machine$],[($Alternative $1)]],\backslash$table$[[$Replace$],[$Old$],[$Machine$],[($Alternative $2)]],\backslash$table$[[$Differential$],[$Effects$],[($Alternative $2)]]],[$Revenues:$,,,],[$Proceeds from sale of old machine,$$,$$$,],[$Costs:$,,,],[$Purchase price,,,$],[$Variable productions costs $(8$ years$),,,],[$Income $($Loss$),,,]]$

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 $ $$

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