Differential Analysis for Machine Replacement

Boyer Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $57,300, the accumulated depreciation is $22,900, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $119,200. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations:

	Present Operations		Proposed Operations
Sales	$181,600		$181,600
Direct materials	$61,900		$61,900
Direct labor	43,000
Power and maintenance	4,000		21,200
Taxes, insurance, etc.	1,400		4,800
Selling and administrative expenses	43,000		43,000
Total expenses	$153,300		$130,900

Question Content Area

a. Prepare a differential analysis dated May 4 to determine whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). Prepare the analysis over the useful life of the new machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.

Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) May 4

	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effects (Alternative 2)
Revenues:	blank	blank	blank
Sales (5 years)	$fill in the blank cf2c07feffa8062_1	$fill in the blank cf2c07feffa8062_2	$fill in the blank cf2c07feffa8062_3
Costs:
Purchase price	fill in the blank cf2c07feffa8062_4	fill in the blank cf2c07feffa8062_5	fill in the blank cf2c07feffa8062_6
Direct materials (5 years)	fill in the blank cf2c07feffa8062_7	fill in the blank cf2c07feffa8062_8	fill in the blank cf2c07feffa8062_9
Direct labor (5 years)	fill in the blank cf2c07feffa8062_10	fill in the blank cf2c07feffa8062_11	fill in the blank cf2c07feffa8062_12
Power and maintenance (5 years)	fill in the blank cf2c07feffa8062_13	fill in the blank cf2c07feffa8062_14	fill in the blank cf2c07feffa8062_15
Taxes, insurance, etc. (5 years)	fill in the blank cf2c07feffa8062_16	fill in the blank cf2c07feffa8062_17	fill in the blank cf2c07feffa8062_18
Selling and admin. expenses (5 years)	fill in the blank cf2c07feffa8062_19	fill in the blank cf2c07feffa8062_20	fill in the blank cf2c07feffa8062_21
Profit (Loss)	$fill in the blank cf2c07feffa8062_22	$fill in the blank cf2c07feffa8062_23	$fill in the blank cf2c07feffa8062_24

Question Content Area

b. Based only on the data presented, should the proposal be accepted?

Should be acceptedShould not be accepted

c. Differences in capacity between the two alternatives is

relevantnot relevant

to consider before a final decision is made.