Boyer Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $86,000, the accumulated depreciation is $34,400, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $178,900. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations: Present Proposed Operations Operations Sales $272,600 $272,600 Direct materials $92,900 $92,900 Direct labor 64,500 Power and maintenance 6,000 31,800 Taxes, insurance, etc. 2,200 7,100 Selling and administrative expenses 64,500 64,500 Total expenses $230,100 $196,300 a. Prepare a differential analysis dated May 4 to determine whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). Prepare the analysis over the useful life of the new machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
Boyer Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $86,000, the accumulated depreciation is $34,400, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $178,900. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations: Present Proposed Operations Operations Sales $272,600 $272,600 Direct materials $92,900 $92,900 Direct labor 64,500 Power and maintenance 6,000 31,800 Taxes, insurance, etc. 2,200 7,100 Selling and administrative expenses 64,500 64,500 Total expenses $230,100 $196,300 a. Prepare a differential analysis dated May 4 to determine whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). Prepare the analysis over the useful life of the new machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Diff Analysis & Product Pricing:
Transcribed Image Text:Differential Analysis for Machine Replacement
Boyer Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $86,000, the accumulated depreciation is
$34,400, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic
machine that has a purchase price of $178,900. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant
accumulated the following annual data on present and proposed operations:
Present
Proposed
Operations
Operations
Sales
$272,600
$272,600
Direct materials
$92,900
$92,900
Direct labor
64,500
Power and maintenance
6,000
31,800
Taxes, insurance, etc.
2,200
7,100
Selling and administrative expenses
64,500
64,500
Total expenses
$230,100
$196,300
a. Prepare a differential analysis dated May 4 to determine whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). Prepare the analysis over the useful life of the
new machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
Transcribed Image Text:a. Prepare a differential analysis dated May 4 to determine whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). Prepare the analysis over the useful life of the
new machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
May 4
Continue
with Old
Differential
Replace
Old Machine
Machine
Effects
(Alternative 1) (Alternative 2) (Alternative 2)
Revenues:
Sales (5 years)
Costs:
Purchase price
Direct materials (5 years)
Direct labor (5 years)
Power and maintenance (5 years)
Taxes, insurance, etc. (5 years)
Selling and admin. expenses (5 years)
Profit (Loss)
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