90.2K

Verified Solution

Link Copied!

1. Machine Replacement Decision

   A company is considering replacing an old piece of machinery,which cost $597,600 and has $352,200 of accumulated depreciation todate, with a new machine that has a purchase price of $484,300. Theold machine could be sold for $63,200. The annual variableproduction costs associated with the old machine are estimated tobe $156,000 per year for eight years. The annual variableproduction costs for the new machine are estimated to be $101,500per year for eight years.

   a. Prepare a The area of accounting concernedwith the effect of alternative courses of action on revenues andcosts.differential analysis dated April 29 to determine whether tocontinue with (Alternative 1) or replace (Alternative 2) the oldmachine. If an amount is zero, enter "0". For those boxes in whichyou must enter subtracted or negative numbers use a minus sign.

   Differential Analysis
   Continue with Old Machine (Alt. 1) or Replace OldMachine (Alt. 2)
   April 29
   	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effect on Income (Alternative 2)
   Revenues:
   Proceeds from sale of old machine	$	$	$
   Costs:
   Purchase price
   Variable productions costs (8 years)
   Income (Loss)	$	$	$

   Feedback

   Determine whether to continue with (Alternative 1) or replace(Alternative 2) the old machine.
   

   • Continue with the old machine
   • Replace the old machine

   Feedback

   b. What is the sunk cost in this situation?

   The sunk cost is $.