CH25A N3

Machine Replacement Decision A company is considering replacing an old plece of machinery, which cost $599,500 and has $348,800 of accumulated depreciation to date, with a new machine that has a purchase price of $485,000. The old machine could be sold for $63,800. The annual variable production costs associated with the old machine are estimated to be $155,300 per year for 8 years. The annual variable production costs for the new machine are estimated to be $100,200 per year for 8 years. a.1 Prepare a differential analysis dated December 10 to determine whether to continue with (Aiternative 1) or replace (Alternative 2) the old machine, If an amount is zero, enter " 0 ". If required, use a minus sign to indicate a loss. Feedtace T chack My Wherk For the continue and replace alternatives subtract the costs from the revenues. Multiply the variable production costs for the elght year life. Deiermine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2. a.2 Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. a.2 Determine whether to continue with (Aiternative 1) or replace (Aiternative 2) the old machine. Feedback TCheck My work Compare the differential revenves and differential costs of continuing vs. replacing. Which one has the greatest positive differential effect on income? b. What is the sunk cost in this situation? The sunk cost is 4 Feettach T Check Mr Work Sunk costs are costs that have been incurred in the past, cannot be recouped, and are not relevant to future decisions