.Differential analysis report for machine replacement proposal

Catalina Tooling Compnay is considering replacing a machine that has been used in its factory for two 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 $75,000

Annual depreciation (straight line) 7,500

Annual manufacturing costs, excluding depreciation 33,150

Annual ninmanufacturing operating expenses 10,000

Annual Revenue 60,000

Current estimated selling price of the machine 24,000

New Machine

Cost of machine, 8-year life 90,000

Annual depreciation (straight line) 11,250

Annual manufacturing costs, excluding depreciation 18,200

Annual nonmanufacturing operating expenses 10,000

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

.Instructions

1. Prepare a differential analysis report comparing operations utilizing the new machine with operations using the old machine. The analysis should indicate the differential income that would result over the eight-year period if the new machine is acquired.

2. List other factors that should be considered before a final decision is reached.