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 $$108,400$

Annual depreciation $($straight$-$line$)10,840$

Annual manufacturing costs, excluding depreciation $37,700$

Annual nonmanufacturing operating expenses $12,600$

Annual revenue $94,600$

Current estimated selling price of the machine $36,100$

New Machine

Cost of machine, $6-$year life $$136,800$

Annual depreciation $($straight$-$line$)22,800$

Estimated annual manufacturing costs, exclusive of depreciation $19,100$

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

Required:

Question Content Area

$1.$ Prepare a differential analysis as of November $8$ to determine whether to Continue with Old Machine $($Alternative $1)$ or Replace Old 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 zero $"0".$ 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$.2)$

November $8$

Continue with

Old Machine

$($Alternative $1)$ Replace

Old Machine

$($Alternative $2)$ Differential Effects

$($Alternative $2)$

Revenues

Proceeds from sale of old machine $fill in the blank $24$eff$1$fda$01$b$023\_1$

$fill in the blank $24$eff$1$fda$01$b$023\_2$

$fill in the blank $24$eff$1$fda$01$b$023\_3$

Costs

Purchase price fill in the blank $24$eff$1$fda$01$b$023\_4$

fill in the blank $24$eff$1$fda$01$b$023\_5$

fill in the blank $24$eff$1$fda$01$b$023\_6$

Annual manufacturing costs $(6$ yrs$.)$ fill in the blank $24$eff$1$fda$01$b$023\_7$

fill in the blank $24$eff$1$fda$01$b$023\_8$

fill in the blank $24$eff$1$fda$01$b$023\_9$

Profit $($loss$)$ $fill in the blank $24$eff$1$fda$01$b$023\_10$

$fill in the blank $24$eff$1$fda$01$b$023\_11$

$fill in the blank $24$eff$1$fda$01$b$023\_12$

Question Content Area

$2.$ What other factors should be considered before a final decision is reached?

Are there any improvements in the quality of work turned out by the new machine?

What opportunities are available for the use of the funds required to purchase the new machine?

Are there any improvements in the quality of work turned out by the new machine and what opportunities are available for the use of the funds required to purchase the new machine?

What affect would this decision have on employee morale?

None of these choices is correct.

c