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, ten-year life	$107,600
Annual depreciation (straight-line)	10,760
Annual manufacturing costs, excluding depreciation	38,700
Annual nonmanufacturing operating expenses	11,400
Annual revenue	95,800
Current estimated selling price of the machine	36,100
New Machine
Cost of machine, six-year life	$136,200
Annual depreciation (straight-line)	22,700
Estimated annual manufacturing costs, exclusive of depreciation	17,500

Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.

Required:

1. Prepare a differential analysis as of November 8 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the differential profit that would result over the six-year period if the new machine is acquired. 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) November 8 Continue with Replace Differential Old Machine Old Machine Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Proceeds from sale of old machine $ 0 $ 36,100 $ 36,100 Costs Purchase price 0 -136,200 -136,200 Annual manufacturing costs (6 yrs.) -296,760 X -241,200 55,560 Profit (loss) $ -296,760 x $ -341,300 x $ -44,540 x