Machine Replacement Decision

A company is considering replacing an old piece of machinery, which cost $601,000 and has $351,300 of accumulated depreciation to date, with a new machine that has a purchase price of $484,400. The old machine could be sold for $63,200. The annual variable production costs associated with the old machine are estimated to be $155,000 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,600 per year for eight years.

a. Prepare a differential analysis dated April 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "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)
April 29
	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues:
Proceeds from sale of old machine	$fill in the blank 181de6021fcdfc7_1	$fill in the blank 181de6021fcdfc7_2	$fill in the blank 181de6021fcdfc7_3
Costs:
Purchase price	fill in the blank 181de6021fcdfc7_4	fill in the blank 181de6021fcdfc7_5	fill in the blank 181de6021fcdfc7_6
Variable productions costs (8 years)	fill in the blank 181de6021fcdfc7_7	fill in the blank 181de6021fcdfc7_8	fill in the blank 181de6021fcdfc7_9
Income (Loss)	$fill in the blank 181de6021fcdfc7_10	$fill in the blank 181de6021fcdfc7_11	$fill in the blank 181de6021fcdfc7_12

Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.

b. What is the sunk cost in this situation?

The sunk cost is ?