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Differential Analysis for Machine Replacement

Ridgeway Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $$85,000,$ the accumulated depreciation is $$34,000,$ its remaining useful life is $5$ years, and its residual value is negligible. On October $1$ of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $$176,800.$ The automatic machine has an estimated useful life of $5$ years and no significant residual value. For use in evaluating the proposal, the managerial accountant accumulated the following annual data on present and proposed operations:

Present Proposed

Operations Operations

$\backslash$table$[[$Sales$,$$$269,500,$$$269,500$

October $1$

Line Item Description

Continue with Old Machine $($Alternative $1)($Alternative $1)$

Replace Old Machine

Differential Effects $($Alternative $2)($Alternative $2)$

Revenues:

Sales $(5$ years$)$

Costs:

Purchase price

Direct materials $(5$ years$)$

Direct labor $(5$ years$)$

Power and maintenance $(5$ years$)$

Taxes, insurance, etc. $(5$ years$)$

Selling and admin. expenses $(5$ years$)$

Profit $($loss$)$

Profit $($loss$)$

b$.$ Based only on the data presented, should the proposal be accepted?

Should not be accepted

$

$\backslash$table$[[176,800],[459,000]]$