Question

Flint Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows:
Old Machine
Cost of machine, eight-year life ................ $ 38,000
Annual depreciation (straight- line) ................ 4,750
Annual manufacturing costs, excluding depreciation ......... 12,400
Annual nonmanufacturing operating expenses .......... 2,700
Annual revenue ....................... 32,400
Current estimated selling price of the machine .......... 12,900
New Machine
Cost of machine, six-year life .................. $ 57,000
Annual depreciation (straight-line) ................ 9,500
Estimated annual manufacturing costs, exclusive of depreciation .... 3,400
Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.

Instructions
1. Prepare a differential analysis as of November 8, 2014, comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the differential income that would result over the six- year period if the new machine is acquired.
2. List other factors that should be considered before a final decision is reached.



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  • CreatedJune 27, 2014
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