Differential Analysis for Machine Replacement Proposal

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Question: Differential Analysis for Machine Replacement Proposal Flint Tooling Company is considering repla…
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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 $107,500
Annual depreciation (straight-line) 10,750
Annual manufacturing costs, excluding depreciation 38,900
Annual nonmanufacturing operating expenses 11,700
Annual revenue 94,700
Current estimated selling price of the machine 34,900
New Machine
Cost of machine, six-year life $136,800
Annual depreciation (straight-line) 22,800
Estimated annual manufacturing costs, exclusive of
depreciation
18,000

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 28, 2014, comparing operations using the present machine
(Alternative 1) with operations using the new machine (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 28, 2014

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)

$

$

$

Question: Differential Analysis for Machine Replacement ProposalFlint Tooling Company is considering repla...

2. What other factors should be considered
before a final decision is reached?

Are there any improvements in the quality of work turned out by
the new machine?

What opportunities are available for the use of the funds
required to purchase the new machine?

Are there any improvements in the quality of work turned out by
the new machine and what opportunities are available for the use of
the funds required to purchase the new machine?

What affect would this decision have on employee morale?

None of these choices is correct

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