Differential Analysis Report for Machine Replacement Proposal

Franklin Printing 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:

Line Item Description	Amount
Cost of machine, 10-year life	$110,000
Annual depreciation (straight-line)	11,000
Annual manufacturing costs, excluding depreciation	37,900
Annual nonmanufacturing operating expenses	11,600
Annual revenue	96,000
Current estimated selling price of the machine	36,700

Line Item Description	Amount
Cost of machine, six-year life	$136,200
Annual depreciation (straight-line)	22,700
Annual manufacturing costs, excluding depreciation	17,400
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.

Required:

Question Content Area

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.

Line Item Description	Amount
Annual manufacturing costs associated with old machineAnnual reduction in manufacturing costsCost of new machineCost reduction attributable to difference in manufacturing costsProceeds from sale of old machine	$- Select -
Annual manufacturing costs associated with new machineAnnual reduction in manufacturing costsCost of new machineCost reduction attributable to difference in manufacturing costsProceeds from sale of old machine	- Select -
Annual increase in manufacturing costsAnnual reduction in manufacturing costs	$- Select -
Number of years applicable	xNumber of years applicable
Cost increase attributable to difference in manufacturing costsCost reduction attributable to difference in manufacturing costs	$- Select -
Annual manufacturing costs associated with old machineAnnual manufacturing costs associated with new machineAnnual reduction in manufacturing costsCost reduction attributable to difference in manufacturing costsProceeds from sale of old machine	- Select -
	$fill in the blank a18abe038f9a07c_12
Annual manufacturing costs associated with old machineAnnual manufacturing costs associated with new machineAnnual reduction in manufacturing costsCost of new machineCost reduction attributable to difference in manufacturing costs	- Select -
Net differential income anticipated from replacement, six-year totalNet differential loss anticipated from replacement, six-year total	$- Select -

Question Content Area

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.

1 only1, 2, and 3 only2 and 3 only3 and 4 only1, 2, 3 and 4