Differential Analysis for Machine Replacement Proposal

Gutenberg Publishers Inc. 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:

Cost of machine, $10$ year life $120,000$

Annual depreciation$($straight$-$line$)12,000$

Annual nonmanufactoring operating expenses $22,500$

Annual revenue $90,000$

Current estimated selling price of the machine $40,000$

New machine

Purchase price of machine, $6-$year life $160,000$

Annual depreciation$($straight$-$line$)16,000$

Estimated annual manufacturing cost, excluding depreciation $7,500$

Annual nonmanufactoring operating expenses and reneue are not expected to be effected by purchase of the new machine

Required

Prepare a differetial analysis as of november $30$ comparing operations using the present machine $($alternative $1)$ with operations using the new machine $($alternative $2)$ the analysis should indicate the total differential profit that would result over $6$ yest period of the nee machine is scquired, if an amount is zero, enter $"0"$ if required, use a minus sigh to indicate a loss

Differential analasys, continue with $($alt$\mathrm{.}1)$ or replace $($alt$\mathrm{.}2)$ old machine november $30$

Revenues

Proceeds from sale of old machine

Cost

Purchase price

Annual manufactoring cost $(6$ yrs$)$

Prifit loss