Lone Wolf Technologies Inc. assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $75,000, the accumulated depreciation is $30,000, its remaining useful life is eight years, and its residual value is zero. A proposal was made to replace the present manufacturing procedure with a fully automatic machine that will cost $160,000. The automatic machine has an estimated useful life of eight years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on current and proposed operations:

______________________________Current Operations_________Proposed Operations

Sales ........................................... $3,800,000 ............................ $3,800,000

Direct materials ............................... $500,000 ................................ $500,000

Direct labor ..................................... 150,000 .................................... 50,000

Power and maintenance ......................... 10,000 ................................... 60,000

Taxes, insurance, etc............................... 5,000 .................................. 12,000

Selling and administrative expenses .............. 200,000................................ 200,000

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