Machine Replacement Decision

A company is considering replacing an old piece of machinery, which cost $599,300 and has $352,700 of accumulated depreciation to date, with a new machine that has a purchase price of $483,200. The old machine could be sold for $62,700. 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 $101,600 per year for eight years.

Question Content Area

A. Prepare a differential analysis dated September 13, 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) September 13

	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	$fill in the blank	$fill in the blank
Costs:
Purchase price	fill in the blank	fill in the blank	fill in the blank
Variable productions costs (8 years)	fill in the blank	fill in the blank	fill in the blank
Income (Loss)	$fill in the blank	$fill in the blank	$fill in the blank

b. What is the sunk cost in this situation?

The sunk cost is the $ fill in the blank