Differential Analysis for Machine Replacement Proposal

Franklin Printing Company is considering replacing a machine that has been used in its factory for $4$ 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, $10-$year life

Annual depreciation $($straight$-$line$)$

Annual manufacturing costs, excluding depreciation

Annual nonmanufacturing operating expenses

Annual revenue

Current estimated selling price of the machine

$$106,500$

$10,650$

$38,000$

$12,400$

$95,100$

$35,700$

New Machine

Cost of machine, $6-$year life

$$139,200$

Annual depreciation $($straight$-$line$)$

$23,200$

Estimated annual manufacturing costs, exclusive of depreciation

$18,100$

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

new machine.

Required:

Prepare a differential analysis as of November $8$ comparing operations using the present machine $($Alternative

with operations using the new machine $($Alternative $2).$ The analysis should indicate the differential profit that

would result over the $6-$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 Old

Machine $($Alternative

Replace OId

Machine

$($Alternative $2)$

Differential

Effects

$($Alternative $2)$

Revenues

Proceeds from sale of old machine

Costs

Purchase price

Annual manufacturing costs $(6$

yrs$.)$

Profit $($loss$)$

$

$q$

s

$

$