Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Di

Question

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

Variable productions costs (8 years)

Income (Loss)

Machine Replacement Decision

A company is considering replacing an old piece of machinery, which cost $600,500 and has $348,800 of accumulated depreciation to date, with a new machine that costs $484,100. The old machine could be sold for $62,300. The annual variable production costs associated with the old machine are estimated to be $155,500 per year for eight years. The annual variable production costs for the new machine are estimated to be $100,500 per year for eight years.

Prepare a differential analysis dated October 3, 2014, to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter zero "0".

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

Variable productions costs (8 years)

Income (Loss)

Explanation / Answer

cost of new machine 484100 sale proceeds of old machine 62300 cash outflow 421800 Year variable manufacturing cost of old machine variable manufacturing cost of newmachine diffrentials 1 operating cost of old machine 155500 100500 55000 2 155500 100500 55000 3 155500 100500 55000 4 155500 100500 55000 5 155500 100500 55000 6 155500 100500 55000 7 155500 100500 55000 8 155500 100500 55000 total saving in cost 440000 total cash outflow 421800 net saving 18200 we can sell out the old machine and purchase the new one

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