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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 $84,500, the accumulated depreciation is $33,800, 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 $175,800. 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	$267,900		$267,900
Direct materials	$91,300		$91,300
Direct labor	63,400
Power and maintenance	5,900		31,300
Taxes, insurance, etc.	2,100		7,000
Selling and administrative expenses	63,400		63,400
Total expenses	$226,100		$193,000

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. 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 Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effects (Alternative 2)
Revenues:
Sales (5 years)	$fill in the blank d3afa6fcffe3fef_1	$fill in the blank d3afa6fcffe3fef_2	$fill in the blank d3afa6fcffe3fef_3
Costs:
Purchase price	fill in the blank d3afa6fcffe3fef_4	fill in the blank d3afa6fcffe3fef_5	fill in the blank d3afa6fcffe3fef_6
Direct materials (5 years)	fill in the blank d3afa6fcffe3fef_7	fill in the blank d3afa6fcffe3fef_8	fill in the blank d3afa6fcffe3fef_9
Direct labor (5 years)	fill in the blank d3afa6fcffe3fef_10	fill in the blank d3afa6fcffe3fef_11	fill in the blank d3afa6fcffe3fef_12
Power and maintenance (5 years)	fill in the blank d3afa6fcffe3fef_13	fill in the blank d3afa6fcffe3fef_14	fill in the blank d3afa6fcffe3fef_15
Taxes, insurance, etc. (5 years)	fill in the blank d3afa6fcffe3fef_16	fill in the blank d3afa6fcffe3fef_17	fill in the blank d3afa6fcffe3fef_18
Selling and admin. expenses (5 years)	fill in the blank d3afa6fcffe3fef_19	fill in the blank d3afa6fcffe3fef_20	fill in the blank d3afa6fcffe3fef_21
Profit (Loss)	$fill in the blank d3afa6fcffe3fef_22	$fill in the blank d3afa6fcffe3fef_23	$fill in the blank d3afa6fcffe3fef_24

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