Question

Morning Coffee Co. has an outdated piece of machinery that the company is considering replacing Use the information below for the two pieces of machinery. Prepare a differential analysis to determine if the company should continue with the old piece of machinery (Altemative I) or replace the piece of machinery (Altermative 2). Old machine Estimated annual variable manufacturing costs... Estimated selling price Remaining useful life. $15,000 $3,200 5 years New machine: Purchase price. Estimated annual variable manufacturing costs Estimated residual value Estimated useful life $42,000 $6,000 5 years Differential Analysis Continue with Old Machine(Alt. I) or Replace Old Machine (Alt. 2) Continue Replace (Alt.1)(Alt.2) Differential Effect on Income (Alt.2)

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Answer #1

Differential analysis

Continue with old machine (Alt. 1) or Replace Old Machine (Alt, 2)

Continue (Alt 1 )

Replace (Alt. 2)

Differential effect on Income (Alt . 2)

Variable cost

$ 75,000.00

$ 30,000.00

$   45,000.00

Sale price of old machine

$ (3,200.00)

$      3,200.00

Purchase price of new machine

$ 42,000.00

$ (42,000.00)

Net benefit

$      6,200.00

Variable cost is for 5 years

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