2) 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 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	$107,500
Annual depreciation (straight-line)	10,750
Annual manufacturing costs, excluding depreciation	38,400
Annual nonmanufacturing operating expenses	12,600
Annual revenue	94,900
Current estimated selling price of the machine	36,700
New Machine
Cost of machine, six-year life	$136,200
Annual depreciation (straight-line)	22,700
Estimated annual manufacturing costs, exclusive of depreciation	18,500

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 28, 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. If an amount is zero, enter zero "0".

Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
February 28, 2014
		Continue with Old Machine (Alternative 1)		Replace Old Machine (Alternative 2)		Differential Effect on Income (Alternative 2)
Revenues
Proceeds from sale of old machine		$ Correct 9 of Item 1		$ Correct 10 of Item 1		$ Correct 11 of Item 1
Costs
Purchase price		Correct 14 of Item 1		Correct 15 of Item 1		Correct 16 of Item 1
Annual manufacturing costs (6 yrs.)		Correct 18 of Item 1		Correct 19 of Item 1		Correct 20 of Item 1
Income (Loss)		$ Correct 22 of Item 1		$ Correct 23 of Item 1		$ Correct 24 of Item 1

2. What other factors should be considered before a final decision is reached?

Are there any improvements in the quality of work turned out by the new machine?

What opportunities are available for the use of the funds required to purchase the new machine?

Are there any improvements in the quality of work turned out by the new machine and what opportunities are available for the use of the funds required to purchase the new machine?

What affect would this decision have on employee morale?

None of these choices is correct.

SelectabcdeCorrect 1 of Item 2