Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $597,300 and has $349,600 of accumulated depreciation to date, with a new machine that has a purchase price of $486,000. The old machine could be sold for $63,700. The annual variable production costs associated with the old machine are estimated to be $155,700 per year for 8 years. The annual variable production costs for the new machine are estimated to be $101,100 per year for 8 years. a.1 Prepare a differential analysis dated December 10 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue with (Alt. 1) or Replace (Alt. 2) Old Machine December 10 Line Item Description Revenues: Costs: Proceeds from sale of old machine $ Purchase price Variable productions costs (8 years) Profit (loss) Feedback Replace the old machine Feedback Check My Work Continue with Old Machine (Alternative 1) $ 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 1 from alternative 2. Feedback a.2 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 $ X Feedback Replace Old Machine Differential Effects (Alternative 2) (Alternative 2) Check My Work Partially correct $ $ Compare the differential revenues and differential costs of continuing vs. replacing. Which one has the greatest positive differential effect on income? $ Check My Work Sunk costs are costs that have been incurred in the past, cannot be recouped, and are not relevant to future decisions.