Differential analysis for machine replacement proposal Franklin Printing Company is considering replacing a machine that has been
Question:
Differential analysis for machine replacement proposal
Franklin Printing Company is considering replacing a machine that has been used in its factory for four years. Relevant data associated with the operation 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……………………………………………………..............108,000
Annual depreciation (straight-line) ………………………………………………...........10,800
Annual manufacturing costs, excluding depreciation…………………………….38,600
Annual nonmanufacturing operating expenses…………………………………...12, 300
Annual revenue…………………………………………………………………......................95,000
Current estimated selling price of machine…………………………………….....…35,900
New Machine
Cost of machine six year life…………………………………………………..............…138,000
Annual depreciation (straight line)………………………………………………...........23,000
Estimated annual manufacturing cost, exclusive of depreciation………….18,200
Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.
1. Prepare a differential analysis as of February 29, 2012 comparing operations using the present equipment (Alternative 1) with operations using the new equipment (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.
Financial and Managerial Accounting Using Excel for Success
ISBN: 978-1111993979
1st edition
Authors: James Reeve, Carl S. Warren, Jonathan Duchac