Replace Equipment machine with a book value of $245,300 has an estimated six-yea
ID: 2584327 • Letter: R
Question
Replace Equipment machine with a book value of $245,300 has an estimated six-year life. A proposal is offered to sell ost of $282,500. The the old machine for $215,900 and replace it with a new machine at a new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from $50,900 to $40,700. . 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 amountis zero, enter zero "O". 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 (Altemative 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)Explanation / Answer
Solution:-
a.
b.
Company should continue with old machine (Alt. 1).
Please Rate or comment if you have any doubt regarding this solution.
Differential analysis Continue with old machine (Alt. 1) or replace old machine (Alt. 2) April 11 Continue with old machine (Alt. 1) Replace old machine (Alt. 2) Differential effect on income (Alt. 2) Revenues: Procees from sale of old machine 0 215,900 215,900 Cost: Purchase price 0 282,500 282,500 Direct labor 305,400 244,200 (61,200) Income / (loss) (305,400) (310,800) (5,400)