1. Differential analysis: Leasing or selling Ryan Inc. is a printing company tha
ID: 2451196 • Letter: 1
Question
1. Differential analysis: Leasing or selling
Ryan Inc. is a printing company that has equipment used to print boxes, magazines, newspapers, and pamphlets. The company's president has decided that her company will no longer offer pamphlet-printing services because the profit is insufficent. She is currently deciding whether to sell or lease the pamphlet printing equipment to another company that has expressed an interest in it. The following table includes the information that is relevant to this decision as of December 31,2013. (Note: Ignore income taxes and differential revenue from investing funds.)
Conduct a differential analysis whether Ryan should sell or lease the printing equipment, and then answer the following questions.
Please complete the following three questions:
B. Given the two alternatives, what is the differential cost that Ryan's president shoudl consider in her decision?
C. Given the preceding information, should the company lease or sell the printing equipment?
Original cost of equipment $348,000 Accumulated depreciation as of 12/31/2013 261,000 Lease Option Total revenue for three-year lease 255,000 Estimated repairs and insurance expense during the three-year lease 36,700 Expected residual value of the equipment at th end of the three-year lease 0 Selling Option Sales price 325,000 Sales commission 2%Explanation / Answer
Differential analysis
Decision making technique in which evaluation is confined to only those factors which are different or unique among possible alternatives. It usually involves four steps: (1) compute all costs associated with each alternative, (2) ignore the sunk costs (3) ignore costs that remain largely constant among the alternatives, and (4) select the alternative offering the best cost-to-benefit ratio. Also called incremental analysis or relevant analysis.
B.Ryan should consider the differential cost 36700
C.Ryan should select leasing the equipment as it offers better cost to benefit .
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