Machine Replacement Decision

A company is considering replacing an old piece of machinery, which cost $600,600 and has $348,200 of accumulated depreciation to date, with a new machine that has a purchase price of $484,800. The old machine could be sold for $62,200. The annual variable production costs associated with the old machine are estimated to be $155,200 per year for 8 years. The annual variable production costs for the new machine are estimated to be $99,100 per year for 8 years.

Question Content Area

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.

Line Item Description	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effects (Alternative 2)
Revenues:
Proceeds from sale of old machine	$Proceeds from sale of old machine	$Proceeds from sale of old machine	$Proceeds from sale of old machine
Costs:
Purchase price	Purchase price	Purchase price	Purchase price
Variable productions costs (8 years)	Variable productions costs (8 years)	Variable productions costs (8 years)	Variable productions costs (8 years)
Profit (loss)	$Profit (loss)	$Profit (loss)	$Profit (loss)