PR 24-2B Diferential analysis for machine replacement proposal lint Tooling Comp

Question

PR 24-2B Diferential analysis for machine replacement proposal lint 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 38,000 4,750 2,400 2,700 32,400 12,900

Explanation / Answer

Therefore, the old machine should be continue

Continue with old machine Replace old machine Differential Effect on income Revenue: Proceeds from sale of old machine 0 12900 -12900 Cost: Purchase Price 0 -57000 57000 Annual manufacturing cost (6yrs.) -15100 -3400 -11700 Income (loss) -15100 -47500 32400

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