Question
Replace equipment A machine with a book value of $80,000 has an estimated five-year life. A proposal is offered to sell the old machine for
Replace equipment
A machine with a book value of $80,000 has an estimated five-year life. A proposal is offered to sell the old machine for $43,500 and replace it with a new machine at a cost of $58,500. The new machine has a five-year life with no residual value. The new machine would reduce annual direct labor costs from $11,800 to $9,500.
This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.
Open spreadsheet
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 costs, losses, or negative differential effect on income.
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 Effects (Alternative 2) | ||||
Revenues: | ||||||
Proceeds from sale of old machine | $fill in the blank 2 | $fill in the blank 3 | $fill in the blank 4 | |||
Costs: | ||||||
Purchase price | fill in the blank 5 | fill in the blank 6 | fill in the blank 7 | |||
Direct labor (5 years) | fill in the blank 8 | fill in the blank 9 | fill in the blank 10 | |||
Profit (Loss) | $fill in the blank 11 | $fill in the blank 12 | $fill in the blank 13 |
Should the company continue with the old machine (Alternative 1) or replace the old machine (Alternative 2)?
Continue with the old machineReplace the old machine
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