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Differential Analysis for Machine Replacement Ridgeway Digital Components Company assembles circuit boards by using a manually operated machine to insert elèctronic components. The original cost of the machin is $51,900, the accumulated depreciation is $20,800, its remaining useful life is 5 years, and its residual value is negligible. On October 1 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 $108,000. The automatic machine has an estimated useful life of 5 years and no significant residual value. For use in evaluating the proposal, the managerial accountant accumulated the following annual data or present and proposed operations: Sales Direct materials Direct labor Power and maintenance Taxes, insurance, etc. Selling and administrative expenses. Total expenses a. Prepare a differential analysis dated October 1 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. 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. Revenues: Sales (5 years) Costs: Line Item Description Present Proposed Operations Operations $164,500 $164,500 $56,100 $56,100 38,900 3,600 1,300 38,900 $138,800 Profit (loss) Differential Analysis Continue with (Alt. 1) or Replace (Alt. 2) Old Machine October 1 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) 19,200 4,300 38,900 $118,500 Differential Analysis Continue with (Alt. 1) or Replace (Alt. 2) Old Machine October 1 Continue with Old Machine (Alternative 1) c. Differences in capacity between the two alternatives is Replace Old Machine (Alternative 2) b. Based only on the data presented, should the proposal be accepted? Differential Effects (Alternative 2) to consider before a final decision is made.

Differential Analysis for Machine Replacement Ridgeway Digital Components Company assembles circuit boards by using a manually operated machine to insert elèctronic components. The original cost of the machin is $51,900, the accumulated depreciation is $20,800, its remaining useful life is 5 years, and its residual value is negligible. On October 1 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 $108,000. The automatic machine has an estimated useful life of 5 years and no significant residual value. For use in evaluating the proposal, the managerial accountant accumulated the following annual data or present and proposed operations: Sales Direct materials Direct labor Power and maintenance Taxes, insurance, etc. Selling and administrative expenses. Total expenses a. Prepare a differential analysis dated October 1 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. 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. Revenues: Sales (5 years) Costs: Line Item Description Present Proposed Operations Operations $164,500 $164,500 $56,100 $56,100 38,900 3,600 1,300 38,900 $138,800 Profit (loss) Differential Analysis Continue with (Alt. 1) or Replace (Alt. 2) Old Machine October 1 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) 19,200 4,300 38,900 $118,500 Differential Analysis Continue with (Alt. 1) or Replace (Alt. 2) Old Machine October 1 Continue with Old Machine (Alternative 1) c. Differences in capacity between the two alternatives is Replace Old Machine (Alternative 2) b. Based only on the data presented, should the proposal be accepted? Differential Effects (Alternative 2) to consider before a final decision is made.

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter11: Differential Analysis And Product Pricing
Section: Chapter Questions
Problem 10E: Differential analysis for machine replacement Boyer Digital Components Company assembles circuit...
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Differential Analysis for Machine Replacement Ridgeway Digital Components Company assembles circuit boards by using a manually operated machine to insert elèctronic components. The original cost of the machine is $51,900, the accumulated depreciation is $20,800, its remaining useful life is 5 years, and its residual value is negligible. On October 1 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 $108,000. The automatic machine has an estimated useful life of 5 years and no significant residual value. For use in evaluating the proposal, the managerial 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 a. Prepare a differential analysis dated October 1 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. 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. Revenues: Sales (5 years) Costs: Line Item Description Present Proposed Operations Operations $164,500 $164,500 $56,100 $56,100 38,900 3,600 1,300 38,900 $138,800 Differential Analysis Continue with (Alt. 1) or Replace (Alt. 2) Old Machine October 1 Differential Analysis Continue with (Alt. 1) or Replace (Alt. 2) Old Machine October 1 Continue with Old Machine (Alternative 1) 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) 19,200 4,300 38,900 $118,500 c. Differences in capacity between the two alternatives Replace Old Machine (Alternative 2) 000 b. Based only on the data presented, should the proposal be accepted? Differential Effects (Alternative 2) to consider before a final decision is made.
Transcribed Image Text:Differential Analysis for Machine Replacement Ridgeway Digital Components Company assembles circuit boards by using a manually operated machine to insert elèctronic components. The original cost of the machine is $51,900, the accumulated depreciation is $20,800, its remaining useful life is 5 years, and its residual value is negligible. On October 1 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 $108,000. The automatic machine has an estimated useful life of 5 years and no significant residual value. For use in evaluating the proposal, the managerial 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 a. Prepare a differential analysis dated October 1 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. 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. Revenues: Sales (5 years) Costs: Line Item Description Present Proposed Operations Operations $164,500 $164,500 $56,100 $56,100 38,900 3,600 1,300 38,900 $138,800 Differential Analysis Continue with (Alt. 1) or Replace (Alt. 2) Old Machine October 1 Differential Analysis Continue with (Alt. 1) or Replace (Alt. 2) Old Machine October 1 Continue with Old Machine (Alternative 1) 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) 19,200 4,300 38,900 $118,500 c. Differences in capacity between the two alternatives Replace Old Machine (Alternative 2) 000 b. Based only on the data presented, should the proposal be accepted? Differential Effects (Alternative 2) to consider before a final decision is made.
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