Differential Analysis Report for Machine Replacement

White Noise Technologies Inc. assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $$37,500,$ the accumulated depreciation is $$15,000,$ its remaining useful life is eight years, and its residual value is zero. A proposal was made to replace the present manufacturing procedure with a fully automatic machine that will cost $$80,000.$ The automatic machine has an estimated useful life of eight years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on current and proposed operations:

Current

Operations Proposed

Operations

Sales $$1,900,000$ $$1,900,000$

Direct materials $$250,000$ $$250,000$

Direct labor $75,00025,000$

Power and maintenance $5,00030,000$

Taxes, insurance, etc. $2,5006,000$

Selling and administrative expenses $100,000100,000$

Total expenses $$432,500$ $$411,000$