Lexigraphic Printing Company is considering replacing a machine that has been us

Question

Lexigraphic Printing 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:

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

Old Machine Cost of machine, 10-year life $89,000 Annual depreciation (straight-line) 8,900 Annual manufacturing costs, excluding depreciation 23,600 Annual non-manufacturing operating expenses 6,100 Annual revenue 74,200 Current estimated selling price of machine 29,700

Explanation / Answer

1) Apr-30 Continue with Replace Differential Effect Old Machine Old Machine on Income (Alternative 1) (Alternative 2) (Alternative 2) Revenues: 74200 74200 0 Proceeds from sale of old machine 0 29700 29700 Costs: Purchase price 0 119700 -119700 Annual manufacturing costs (6 yrs.) 141600 41400 100200 Income (loss) 10200 The proposal to replace the machine should be Accepted 2) Other factors to be considered: a) Income tax effect on revenues, costs and depreciation. b) Time value of money c) Quality of work of the new machine. d) Employee reaction on the effect of the new machine on work environment, etc

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