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eBookPrint Item Question Content Area Differential Analysis for Machine Replacement Proposal Franklin Printing Company is considering replacing a machine that has been used in its factory for 4 years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows: Old Machine Line Item Description Amount Cost of machine, 10-year life $110,000 Annual depreciation (straight-line) 11,000 Annual manufacturing costs, excluding depreciation 39,300 Annual nonmanufacturing operating expenses 11,700 Annual revenue 94,800 Current estimated selling price of the machine 36,500 New Machine Line Item Description Amount Cost of machine, 6-year life $138,600 Annual depreciation (straight-line) 23,100 Estimated annual manufacturing costs, exclusive of depreciation 18,000 Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine. Required: Question Content Area 1. Prepare a differential analysis as of November 8 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the differential profit that would result over the 6-year period if the new machine is acquired. 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) November 8 Line Item Description Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effects (Alternative 2) Revenues Proceeds from sale of old machine $Proceeds from sale of old machine $Proceeds from sale of old machine $Proceeds from sale of old machine Costs Purchase price Purchase price Purchase price Purchase price Annual manufacturing costs (6 yrs.) Annual manufacturing costs (6 yrs.) Annual manufacturing costs (6 yrs.) Annual manufacturing costs (6 yrs.) Profit (loss) $Profit (loss) $Profit (loss) $Profit (loss) Question Content Area 2. What other factors should be considered before a final decision is reached? a. Are there any improvements in the quality of work turned out by the new machine? b. What opportunities are available for the use of the funds required to purchase the new machine? c. Are there any improvements in the quality of work turned out by the new machine and what opportunities are available for the use of the funds required to purchase the new machine? d. What affect would this decision have on employee morale? e. None of these choices are correct.

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