Hoover Company produces wood chips by using a manually operated machine to cut logs (direct materials). The original cost of the machine is \($150,000,\) the accumulated depreciation is \($110,000,\) its remaining useful life is 10 years, and its salvage value is negligible. On January 20, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that will cost

\($200,000.\) The automatic machine has an estimated useful life of 10 years and no significant salvage value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations:

a. Prepare a differential analysis report for the proposal to replace the machine.
Include in the analysis both the net differential decrease in costs anticipated over the 10 years and the net annual differential decrease in costs anticipated.

b. Based only on the data presented, should the proposal be accepted?

c. What are some of the other factors that should be considered before a final decision is made?

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Present Operations Proposed Operations Sales $480,000 $480,000 Direct materials 195,000 195,000 Direct labor 72,300 Power and maintenance 17,500 31,000 Taxes, insurance, etc. 9,200 25,000 Selling and administrative expenses 45,000 45,000