Question
Replace Equipment A machine with a book value of $250,400 has an estimated six-year life. A proposal is offered to sell the old machine for
Replace Equipment
A machine with a book value of $250,400 has an estimated six-year life. A proposal is offered to sell the old machine for $216,700 and replace it with a new machine at a cost of $281,900. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from $50,600 to $40,500.
a. Prepare a differential analysis dated April 11 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate subtracted or negative numbers or a loss.
Differential Analysis | |||
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) | |||
April 11 | |||
Continue with Old Machine (Alternative 1) | Replace Old Machine (Alternative 2) | Differential Effect on Income (Alternative 2) | |
Revenues: | |||
Proceeds from sale of old machine | $ | $ | $ |
Costs: | |||
Purchase price | |||
Direct labor (6 years) | |||
Income (Loss) | $ | $ | $ |
b. Should the company continue with the old machine (Alternative 1) or replace the old machine (Alternative 2)?
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