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 $61,100, the accumulated depreciation $24,400, 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 $127,100. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulat the following annual data on present and proposed operations: Sales Direct materials Direct labor Power and maintenance Taxes, insurance, etc. Selling and administrative expenses Total expenses Revenues: Sales (5 years) Costs: Present Proposed Operations Operations $193,700 $66,000 45,800 4,300 1,500 45,800 Purchase price Direct materials (5 years) Direct labor (5 years) 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. Power and maintenance (5 years) Taxes, insurance, etc. (5 years) Selling and admin. expenses (5 years) Profit (Loss) Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) May 4 $163,400 Continue with Old $193,700 $66,000 Replace Old Machine c. Differences in capacity between the two alternatives is 22,600 5,100 45,800 $139,500 b. Based only on the data presented, should the proposal be accepted? Machine (Alternative 1) (Alternative 2) (Alternative 2) Differential Effects to consider before a final decision is made.
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 $61,100, the accumulated depreciation $24,400, 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 $127,100. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulat the following annual data on present and proposed operations: Sales Direct materials Direct labor Power and maintenance Taxes, insurance, etc. Selling and administrative expenses Total expenses Revenues: Sales (5 years) Costs: Present Proposed Operations Operations $193,700 $66,000 45,800 4,300 1,500 45,800 Purchase price Direct materials (5 years) Direct labor (5 years) 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. Power and maintenance (5 years) Taxes, insurance, etc. (5 years) Selling and admin. expenses (5 years) Profit (Loss) Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) May 4 $163,400 Continue with Old $193,700 $66,000 Replace Old Machine c. Differences in capacity between the two alternatives is 22,600 5,100 45,800 $139,500 b. Based only on the data presented, should the proposal be accepted? Machine (Alternative 1) (Alternative 2) (Alternative 2) Differential Effects to consider before a final decision is made.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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 $61,100, the accumulated depreciation is
$24,400, 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 $127,100. 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:
Sales
Direct materials
Direct labor
Power and maintenance
Taxes, insurance, etc.
Selling and administrative expenses
Total expenses
Revenues:
Sales (5 years)
Costs:
Present
Operations
$193,700
$66,000
45,800
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.
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)
4,300
1,500
45,800
$163,400
Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
May 4
Continue
with Old
Differential
Effects
Machine
(Alternative 1) (Alternative 2) (Alternative 2)
Proposed
Operations
$193,700
$66,000
c. Differences in capacity between the two alternatives is
b. Based only on the data presented, should the proposal be accepted?
22,600
5,100
45,800
$139,500
Replace
Old Machine
to consider before a final decision is made.
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