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	$109,700
Annual depreciation (straight-line)	10,970
Annual manufacturing costs, excluding depreciation	39,100
Annual nonmanufacturing operating expenses	13,200
Annual revenue	95,200
Current estimated selling price of the machine	35,900
New Machine
Cost of machine, 6-year life	$138,600
Annual depreciation (straight-line)	23,100
Estimated annual manufacturing costs, exclusive of depreciation	17,200

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 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 8c652400ef88fc1_1	$fill in the blank 8c652400ef88fc1_2	$fill in the blank 8c652400ef88fc1_3
Costs
Purchase price	fill in the blank 8c652400ef88fc1_4	fill in the blank 8c652400ef88fc1_5	fill in the blank 8c652400ef88fc1_6
Annual manufacturing costs (6 yrs.)	fill in the blank 8c652400ef88fc1_7	fill in the blank 8c652400ef88fc1_8	fill in the blank 8c652400ef88fc1_9
Profit (loss)	$fill in the blank 8c652400ef88fc1_10	$fill in the blank 8c652400ef88fc1_11	$fill in the blank 8c652400ef88fc1_12

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

1. Are there any improvements in the quality of work turned out by the new machine?
2. What opportunities are available for the use of the funds required to purchase the new machine?
3. 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?
4. What affect would this decision have on employee morale?
5. None of these choices is correct.

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