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Differential Analysis Report for Machine Replacement

Lone Wolf Technologies Inc. assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $60,400, the accumulated depreciation is $24,200, its remaining useful life is five years, and its residual value is zero. A proposal was made to replace the present manufacturing procedure with a fully automatic machine that will cost $113,800. 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 current and proposed operations:

Current Operations

Proposed Operations

Sales	$191,500		$191,500
Direct materials	$65,200		$65,200
Direct labor	45,300		15,100
Power and maintenance	4,200		7,200
Taxes, insurance, etc.	1,500		5,000
Selling and administrative expenses	45,300		45,300
Total expenses	$161,500		$137,800

a. Prepare a differential analysis report for the proposal to replace the machine. Include in the analysis both the net differential change in costs anticipated over the five years and the net annual differential change in costs anticipated. LONE WOLF TECHNOLOGIES Replace Machine Differential Analysis Report

Annual costs and expensespresent machine	$
Annual costs and expensesnew machine Annual differential decrease in costs and expenses Number of years applicable Total differential decrease in costs and expenses Cost of new machine Net differential decrease in costs and expenses, five-year total Annual net differential decrease in costs and expensesnew machine

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