Flint Tooling Company is considering replacing a machine that has been used in its factory for 4 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	$108,700
Annual depreciation (straight-line)	10,870
Annual manufacturing costs, excluding depreciation	39,000
Annual nonmanufacturing operating expenses	11,800
Annual revenue	95,600
Current estimated selling price of the machine	36,900
New Machine
Cost of machine, 6-year life	$138,000
Annual depreciation (straight-line)	23,000
Estimated annual manufacturing costs, exclusive of depreciation	18,300

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

Required:

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1. Prepare a differential analysis as of November 8 to determine whether to Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2). The analysis should indicate the differential profit that would result over the 6-year period if the new machine is acquired. If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) November 8

	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effects (Alternative 2)
Revenues
Proceeds from sale of old machine	$	$	$
Costs
Purchase price
Annual manufacturing costs (6 yrs.)
Profit (loss)	$	$	$

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2. What other factors should be considered before a final decision is reached?

Are there any improvements in the quality of work turned out by the new machine?

What opportunities are available for the use of the funds required to purchase the new machine?

Are there any improvements in the quality of work turned out by the new machine and what opportunities are available for the use of the funds required to purchase the new machine?

What affect would this decision have on employee morale?

None of these choices is correct.