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: Old Machine Cost of machine, 10-year life $89,000 Annual depreciation (straight-line) 8,900 Annual manufacturing costs, excluding depreciation 23,600 Annual non-manufacturing operating expenses 6,100 Annual revenue 74,200 Current estimated selling price of machine 29,700 New Machine Purchase price of machine, six-year life $119,700 Annual depreciation (straight-line) 19,950 Estimated annual manufacturing costs, excluding depreciation 6,900 Annual non-manufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine. Required: 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. 2. List other factors that should be considered before a final decision is reached.

Explanation / Answer

Continue with Old Machine Replace Old Machine Differential Effect on Income (Alternative 1) (Alternative 2) (Alternative 2) Revenues Proceeds from sale of old machine 29700 29700 Costs Purchase price -119700 -119700 Annual manufacturing costs -141600 -41400 100200 Income (Loss) -141600 -131400 10200 The company should Replace Old Machine 2 Other factors to be considered are: Are there any improvements in the quality of work turned out by the new machine? What effect does the federal income tax have on the decision? What alternative opportunities are available for the use of the funds?

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