Differential Analysis Report for Machine Replacement Proposal

Flint Tooling Company is considering replacing a machine that has been used in its factory for four 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	$107,500
Annual depreciation (straight-line)	10,750
Annual manufacturing costs, excluding depreciation	38,600
Annual nonmanufacturing operating expenses	11,500
Annual revenue	95,900
Current estimated selling price of the machine	35,300
New Machine
Cost of machine, six-year life	$138,000
Annual depreciation (straight-line)	23,000
Estimated annual manufacturing costs, exclusive of depreciation	18,800
Annual nonmanufacturing operation expenses	10,000

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

Required:

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 six-year period if the new machine is acquired. Enter all amounts as positive numbers.

Flint Tooling Company
Proposal to Replace Machine
Annual manufacturing costs associated with present machine	38600
Annual manufacturing costs associated with proposed new machine
Annual reduction in manufacturing costs
Number of years applicable:	x 6
Cost reduction attributable to difference in manufacturing costs
Annual manufacturing costs associated with present machine
Cost of new machine	138000
Differential income anticipated from replacement, six-year total

2. What are some of the other factors that should be considered before a final decision is made?

1. Are there any improvements in the quality of work turned out by the new machine?
2. What other opportunities are available for the use of the funds that are required to purchase the new machine?
3. What effect does the federal income tax have on the decision?
4. What is the book value of the machine that will be replaced?

Select the relevant factor(s) from the list above.