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.

List other factors that should be considered before a final decision is reached.

1. Prepare a differential analysis as of April 30 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. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.

Differential Analysis

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

April 30

1

Continue with Old Machine

Replace Old Machine

Differential Effect on Income

2

(Alternative 1)

(Alternative 2)

(Alternative 2)

3

4

5

6

7

8

Old Machine Cost of machine, 10-year life $88,810 Annual depreciation (straight-line) 8,770 Annual manufacturing costs, excluding depreciation 23,475 Annual non-manufacturing operating expenses 5,960 Annual revenue 74,360 Current estimated selling price of machine 29,740

Explanation / Answer

1)

**since tax rate is not given ,depreciation is ignored as it is a non cash expense

2)other factors to considered:

opportunity cost of funds invested in new machine   (net of sale value received on old machine)

Improvements in quality of work

effect of federal income taxes on decision

Continue with Old Machine Replace Old Machine Differential Effect on Income proceeds from sale of old machine 29740 29740 Annual manufacturing costs, excluding depreciation 23475*6=(140850) 7070*6=(42420) 98430 urchase price of machine, six-year life (119570) (119570) Total cost (140850) (132250) 8600

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