Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $61,320, the accumulated depreciation is $22,270, its remaining useful life is five years, and its residual value is negligible. On May 4 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 $182,630. 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:

1

Present Operations

Proposed Operations

2

Sales

$204,980.00

$204,980.00

3

Direct materials

$72,890.00

$72,890.00

4

Direct labor

52,590.00

0.00

5

Power and maintenance

3,875.00

18,410.00

6

Taxes, insurance, etc.

1,645.00

3,660.00

7

Selling and administrative expenses

45,950.00

45,950.00

8

Total expenses

$176,950.00

$140,910.00

Prepare a differential analysis dated May 4 to determine whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). Prepare the analysis over the useful life of the new machine. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.

Differential Analysis

Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2)

May 4

1		Continue with Old Machine	Replace Old Machine	Differential Effect on Income
2		(Alternative 1)	(Alternative 2)	(Alternative 2)
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