Machine Replacement Decision

A company is considering replacing an old piece of machinery, which cost $598,600 and has $347,600 of accumulated depreciation to date, with a new machine that has a purchase price of $485,400. The old machine could be sold for $62,200. The annual variable production costs associated with the old machine are estimated to be $155,300 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,300 per year for eight years.

a.1 Prepare a differential analysis dated May 29 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 Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
May 29
	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effects (Alternative 2)
Revenues:
Proceeds from sale of old machine	$fill in the blank f2957105ef8d028_1	$fill in the blank f2957105ef8d028_2	$fill in the blank f2957105ef8d028_3
Costs:
Purchase price	fill in the blank f2957105ef8d028_4	fill in the blank f2957105ef8d028_5	fill in the blank f2957105ef8d028_6
Variable productions costs (8 years)	fill in the blank f2957105ef8d028_7	fill in the blank f2957105ef8d028_8	fill in the blank f2957105ef8d028_9
Profit (Loss)	$fill in the blank f2957105ef8d028_10	$fill in the blank f2957105ef8d028_11	$fill in the blank f2957105ef8d028_12

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

b. What is the sunk cost in this situation?

The sunk cost is $fill in the blank 0eb6c0faa01903d_1.