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Category > Management Posted 08 Jul 2017 My Price 12.00

Differential analysis for machine replacement

Differential analysis for machine replacement

 

Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is

$60,000, the accumulated depreciation is $24,000, 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 $180,000. 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 Operations

Proposed Operations

 

Sales

$205,000

$205,000

 

Direct materials

$  72,000

$  72,000

 

Direct labor

51,000

—

 

Power and maintenance

5,000

18,000

 

Taxes, insurance, etc.

1,500

4,000

 

Selling and administrative expenses

     45,000

     45,000

 

Total expenses

$174,500

$139,000

 

 

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.

b.     Based only on the data presented, should the proposal be accepted?

c.     What are some of the other factors that should be considered before a final decision is made?

Answers

Maurice Tutor
(5)
Status NEW Posted 08 Jul 2017 10:07 AM My Price 12.00

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