Differential Analysis Report for Machine Replacement

Taipei Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $87,000, the accumulated depreciation is $34,800, its remaining useful life is five years, and its residual value is negligible. A proposal was made to replace the present manufacturing procedure with a fully automatic machine that will cost $181,000. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations:

	Present Operations		Proposed Operations
Sales	$275,800		$275,800
Direct materials	94,000		94,000
Direct labor	65,300
Power and maintenance	6,100		32,200
Taxes, insurance, etc.	2,200		7,200
Selling and administrative expenses	65,300		65,300
Total expenses	$232,900		$198,700

a. Prepare a differential analysis report for the proposal to replace the machine. Include in the analysis both the net differential change in costs anticipated over the five years and the net annual differential change in costs anticipated. Enter all amounts as positive numbers.