PR 10-2B Differential analysis for machine replacement proposal Obj. 1 Flint Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows: Old Machine Cost of machine, eight-year life Annual depreciation (straight-line) Annual manufacturing costs, excluding depreciation Annual nonmanufacturing operating expenses Annual revenue Current estimated selling price of the machine New Machine $38,000 4,750 12,400 2,700 32,400 12,900 Cost of machine, six-year life Annual depreciation (straight-line) Estimated annual manufacturing costs, exclusive of depreciation $57,000 9,500 3,400 Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine. ht 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202 Instructions 1. Prepare a differential analysis as of November 8 comparing operations using the present 2. machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the differential income that would result over the six-year period if the new machine is acquired. List other factors that should be considered before a final decision is reached. Revenues: Differential Analysis Continue with (Alt. 1) or Replace (Alt. 2) Old Machine November 8 Continue with Old Machine Replace Old Machine (Alternative 1) (Alternative 2) Differential Effect on Income (Alternative 2) Proceeds from sale of old machine $ Costs: Purchase price Annual manufacturing costs (6 yrs.) Income (loss) The proposal to replace the machine should be [Key essay answer here]