Lone Wolf Technologies Inc. assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $92,800, the accumulated depreciation is $37,100, its remaining useful life is five 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 $174,700. 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 current and proposed operations:

	Current Operations		Proposed Operations
Sales	$294,200		$294,200
Direct materials	$100,200		$100,200
Direct labor	69,600		23,200
Power and maintenance	6,500		11,100
Taxes, insurance, etc.	2,300		7,700
Selling and administrative expenses	69,600		69,600
Total expenses	$248,200		$211,800

Question Content Area

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.

LONE WOLF TECHNOLOGIES Replace Machine Differential Analysis Report

Annual costs and expensespresent machine	$fill in the blank 6690fdf85041fcf_1
Annual costs and expensesnew machine	fill in the blank 6690fdf85041fcf_2
Annual differential decrease in costs and expensesAnnual differential increase in costs and expenses	$- Select -
Number of years applicable	fill in the blank 6690fdf85041fcf_5
Total differential decrease in costs and expensesTotal differential increase in costs and expenses	$- Select -
Cost of new machine	fill in the blank 6690fdf85041fcf_8
Net differential decrease in costs and expenses, five-year totalNet differential increase in costs and expenses, five-year total	$- Select -
Annual net differential decrease in costs and expensesnew machine	$fill in the blank 6690fdf85041fcf_11

Question Content Area

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

YesNo

c. What are some of the other factors that should be considered before a final decision is made?

1. Do both present and proposed operations provide the same capacity?
2. What are the opportunity costs associated with alternative uses of the $174,700 outlay required to purchase the automatic machine?
3. Is the product improved by using automatic machinery?
4. What is the book value of the manually operated machine that will be replaced?

Select the relevant factor(s) from the list above.