Replace Equipment A machine with a book value of $245,200 has an estimated six-y
ID: 2471425 • Letter: R
Question
Replace Equipment
A machine with a book value of $245,200 has an estimated six-year life. A proposal is offered to sell the old machine for $214,100 and replace it with a new machine at a cost of $280,800. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from $49,000 to $39,200.
Note: Consider an outflow a negative value; an inflow a positive value. If an amount is zero, enter "0".
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Hint(s)
Prepare a differential analysis dated February 18, 2014, on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2).
Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
February 18, 2014
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)
$
$
$
Need help with my income( loss) totals Please show work so I can understand
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Hint(s)
Prepare a differential analysis dated February 18, 2014, on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2).
Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
February 18, 2014
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)
$
$
$
Explanation / Answer
Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effect on Income (Alternative 2) Revenues: Proceeds from sale of old machine ($) 214100 214100 $ Costs: Purchase price 245200 280800 35600 $ Direct labor (6 years) 294000 235200 -58800 Income (Loss) (49000 X6) (39200X6) 190900 $