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Replace Equipment A machine with a book value of $83,000 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 $83,000 has an estimated five-year life. A proposal is offered to sell the old machine for $44,500 and replace it with a new machine at a cost of $75,500. The new machine has a five-year life with no residual value. The new machine would reduce annual direct labor costs from $11,100 to $7,800. 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 a. Prepare a differential analysis dated June 2 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 (Alt. 1) or Replace (Alt. 2) Old Machine Revenues: Proceeds from sale of old machine Costs: Purchase price Direct labor (5 years) June 2 Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effects (Alternative 2) x Profit (Loss) b. Should the company continue with the old machine (Alternative 1) or replace the old machine (Alternative 2)? Differential Analysis for a Discontinued Product A condensed income statement by product line for Lavonia Beverage Inc. indicated the following for Vim Cola for the past year: Sales $234,800 Cost of goods sold (109,000) Gross profit $125,800 Operating expenses Operating loss (142,000) $(16,200) It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 21% of the operating expenses are fixed. Because Vim Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued. 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. X Open spreadsheet a. Prepare a differential analysis dated November 2 to determine whether Vim Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "O". If required, use a minus sign to indicate a loss. Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Vim Cola November 2 Continue Vim Cola (Alternative 1) Discontinue Vim Cola Differential (Alternative 2) Effects (Alternative 2) Revenues: Costs: Variable cost of goods sold Variable operating expenses Fixed costs Profit (Loss) b. Should Vim Cola be retained
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