Question

Universal Graphic Printing Company is considering replacing a machine that has been used in its factory for four 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, 10- year life .............. $ 75,300
Annual depreciation (straight-line) ............ 7,530
Annual manufacturing costs, excluding depreciation ..... 21,300
Annual nonmanufacturing operating expenses ........ 5,200
Annual revenue ..................... 67,500
Current estimated selling price of machine .......... 26,800
New Machine
Cost of machine, six-year life .............. $ 111,000
Annual depreciation (straight-line) ............ 18,500
Estimated annual manufacturing costs, excluding depreciation ...6,400
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 April 30, 2014, comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the total 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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