A company is considering replacing an old piece of machinery, which cost $600,000 and has $350,000 of
Question:
A company is considering replacing an old piece of machinery, which cost $600,000 and has $350,000 of accumulated depreciation to date, with a new machine that costs $485,000. The old equipment could be sold for $63,000. The annual variable production costs associated with the old machine are estimated to be $157,000 per year for eight years. The annual variable production costs for the new machine are estimated to be $100,500 per year for eight years.
a. Prepare a differential analysis dated October 3, 2012, to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.
b. What is the sunk cost in this situation?
Step by Step Answer:
Financial and Managerial Accounting Using Excel for Success
ISBN: 978-1111993979
1st edition
Authors: James Reeve, Carl S. Warren, Jonathan Duchac