eek 11 Chapter 25 eek 11 Chapter 25 Replace Equipment A machine with a book valu

Question

eek 11 Chapter 25 eek 11 Chapter 25 Replace Equipment A machine with a book value of 5247,800 residual value. The new machine would reduce annual direct labor costs from $49,100 to $39,300 has an estimated six-year lfe. A proposal is offered to sell the old machine for $214,000 and replace it with s a cost of $280,200 Prepare a diferentisal analysis dated October 3 on whether to continue with the 1) or replace she ols machine (Abenative 2) IMan amount is zero, enter en "" for those boxes n which yo subtracted or negative numbers use a minus sign Continge with Old Machine (Alt. 1) or Replace Old Mochine CAlt. Atemative 1) (Alternative 2) (Alternative 2) ? ? Proceeds om sale of oldi machine Purthane prce ectr(6 years) Income (o Should the company

Explanation / Answer

Solution:

As replacement of old machine will result in loss of $7,900, therefore company should continue with old machine.

Differential Analysis - Continue with old machine (alt 1) or Replace old machine (Alt2)
October 3 Particulars Continue with old machine (Alt 1) Replace old machine (Alt 2) Differential effect on income (Alt 2) Revenues: Proceed from sale of old machine $0.00 $214,000.00 $214,000.00 Costs: Purchase price $0.00 -$280,700.00 -$280,700.00 Direct labor (6 Years) -$294,600.00 -$235,800.00 $58,800.00 Income (Loss) -$294,600.00 -$302,500.00 -$7,900.00

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