Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $600,000 and has $350,000 of accumulated depreciation to date, with a new machine that has a purchase price of $545,000. The old machine could be sold for $231,000. The annual variable production costs associated with the old machine are estimated to be $61,000 per year for eight years. The annual variable production costs for the new machine are estimated to be $19,000 per year for eight years. a.1 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 231,000 X Costs: Purchase price Variable production costs (8 years) Income (Loss) Feedback Check My Work For the continue and replace alternatives subtract the costs from the revenues. Multiply the variable production costs for the eight year life. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 2 from alternative 1. Learning Objective 1. a.2 Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. Feedback Check My Work Compare the differential revenues and differential costs of continuing vs. replacing. Which one has the greatest positive differential effect on income?b. What is the sunk cost in this situation? The sunk cost is the $ Feedback Check My Work Incorrect Feedback Check My Work Incorrect Check My Work Previous Next