Differential Analysis for Machine Replacement Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $83,700, the accumulated depreciation is $33,500, its remaining useful life is 5 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 $174,100. The automatic machine has an estimated useful life of 5 years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations: Sales Direct materials Direct labor Power and maintenance Taxes, insurance, etc. Selling and administrative expenses Total expenses Present Operations Proposed Operations $265,300 $265,300 $90,400 $90,400 62,800 - 5,900 31,000 2,100 6,900 62,800 62,800 $224,000 $191,100 a. Prepare a differential analysis dated May 4 to determine whether to Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2). Prepare the analysis over the useful life of the new machine. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) May 4 Revenues: Sales (5 years) Costs: Continue with Old Machine Replace Old Machine (Alternative 1) (Alternative 2) Purchase price mare Check My Work uses remaining Differential Effects (Alternative 2)