Replace Equipment

A machine with a book value of $$80,000$ has an estimated five$-$year life. A proposal is offered to sell the old machine for $$50,500$ and replace it with a new machine at a cost of $$75,000.$ The new machine has a five$-$year life with no residual value. The new machine would reduce annual direct labor costs from $$11,200$ to $$7,400.$

Question Content Area

Prepare a differential analysis dated April $11$ on whether to continue with the old machine $($Alternative $1)$ or replace the old machine $($Alternative $2).$ If an amount is zero, enter $"0".$ For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis

Continue with Old Machine $($Alt$.1)$ or Replace Old Machine $($Alt$.2)$

April $11$Continue with

Old Machine

$($Alternative $1)$Replace Old

Machine

$($Alternative $2)$Differential Effect

on Income

$($Alternative $2)$Revenues:Proceeds from sale of old machine$fill in the blank $313$a$6$e$08$a$04$b$003\_1$$fill in the blank $313$a$6$e$08$a$04$b$003\_2$$fill in the blank $313$a$6$e$08$a$04$b$003\_3$Costs:Purchase pricefill in the blank $313$a$6$e$08$a$04$b$003\_4$fill in the blank $313$a$6$e$08$a$04$b$003\_5$fill in the blank $313$a$6$e$08$a$04$b$003\_6$Direct labor $(5$ years$)$fill in the blank $313$a$6$e$08$a$04$b$003\_7$fill in the blank $313$a$6$e$08$a$04$b$003\_8$fill in the blank $313$a$6$e$08$a$04$b$003\_9$Income $($Loss$)$$fill in the blank $313$a$6$e$08$a$04$b$003\_10$$fill in the blank $313$a$6$e$08$a$04$b$003\_11$$fill in the blank $313$a$6$e$08$a$04$b$003\_12$

Question Content Area

Should the company continue with the old machine $($Alternative $1)$ or replace the old machine $($Alternative $2)?$