Lexigraphic Printing Company is considering replacing a machine that has been used in its factory for four 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
Cost of machine, 10-year life	$89,000
Annual depreciation (straight-line)	8,900
Annual manufacturing costs, excluding depreciation	23,600
Annual non-manufacturing operating expenses	6,100
Annual revenue	74,200
Current estimated selling price of machine	29,700

New Machine
Purchase price of machine, six-year life	$119,700
Annual depreciation (straight-line)	19,950
Estimated annual manufacturing costs, excluding depreciation	6,900

Annual non-manufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.

	Required:
1.	Prepare a differential analysis as of April 30 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the total differential income that would result over the six-year period if the new machine is acquired. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.
2.	List other factors that should be considered before a final decision is reached.

Labels and Amount Descriptions

Labels
Cash flows from investing activities
Costs
Revenues
Amount Descriptions
Annual manufacturing costs (6 yrs.)
Gain on sale of investments
Loss on sale of investments
Purchase price
Proceeds from sale of old machine
Income (loss)

Differential Analysis

Shaded cells have feedback.

1. Prepare a differential analysis as of April 30 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the total differential income that would result over the six-year period if the new machine is acquired. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.

Score: 65/73

Differential Analysis

Continue with (Alternative 1) or Replace (Alternative 2) Old Machine

April 30

1		Continue with Old Machine	Replace Old Machine	Differential Effect on Income
2		(Alternative 1)	(Alternative 2)	(Alternative 2)
3	?
4	?		?	?
5	?
6	?		?	?
7	?	?	?	?
8	?	?	?	?

Points:

16.03 / 18

Feedback

Check My Work

Determine the manufacturing costs to continue with the old machine for six years at the current amount. Determine the manufacturing costs with the replacement machine for six years. Determine the effect of the purchase price of the replacement and the sale proceeds of the old machine. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2.

Final Question

Shaded cells have feedback.

2. List other factors that should be considered before a final decision is reached. Check all that apply.

Should management have purchased a different model of the old machine?

What opportunities are available for the use of the $90,000 of funds ($119,700 less $29,700 proceeds from the old machine) that are required to purchase the new machine?

Are there any improvements in the quality of work turned out by the new machine?

What effect does the federal income tax have on the decision?

Was the purchase price of the old machine too high?

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