Problem 24-2 (Algorithmic) Differential Analysis for Machine Replacement Proposal

Flint Tooling Company is considering replacing a machine that has been used in its factory for four 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, 10-year life	$108,300
Annual depreciation (straight-line)	10,830
Annual manufacturing costs, excluding depreciation	38,400
Annual nonmanufacturing operating expenses	12,800
Annual revenue	95,000
Current estimated selling price of the machine	36,700
New Machine
Cost of machine, six-year life	$138,000
Annual depreciation (straight-line)	23,000
Estimated annual manufacturing costs, exclusive of depreciation	19,100

Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.

Required:

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1. Prepare a differential analysis as of February 29, 2012, comparing operations using the present equipment (Alternative 1) with operations using the new equipment (Alternative 2). The analysis should indicate the total differential income that would result over the six-year period if the new machine is acquired. If an amount is zero, enter zero "0".

Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
February 29, 2012
		Continue with Old Machine (Alternative 1)		Replace Old Machine (Alternative 2)		Differential Effect on Income (Alternative 2)
Revenues
Proceeds from sale of old machine		$		$		$
Costs
Purchase price
Annual manufacturing costs (6 yrs.)
Income (Loss)		$		$		$