Continue with Old Machine (Alternative 1)

Replace Old Machine (Alternative 2)

Differential Effect on Income (Alternative 2)

Revenues:

Proceeds from sale of old machine

Costs:

Purchase price

Variable productions costs (8 years)

Income (Loss)

Machine Replacement Decision

A company is considering replacing an old piece of machinery, which cost $600,500 and has $348,800 of accumulated depreciation to date, with a new machine that costs $484,100. The old machine could be sold for $62,300. The annual variable production costs associated with the old machine are estimated to be $155,500 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.

Prepare a differential analysis dated October 3, 2014, to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter zero "0".