Question

1. differential analysis for a lease or sell decision

Differential Analysis for a Lease-or-Sell Decision Inman Construction Company is considering selling excess machinery with a book value of $278,600 (original cost of $399,400 less accumulated depreciation of $120,800) for $274,600, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $283,300 for five years, after which it is expected to have no residual value. During the penod of the lease, Inman Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,200. a. Prepare a differential analysis, dated May 25 to determine whether Inman should lease (Alternative 1) or sell (Alternative 2) the machinery. For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2) May 25 Lease Machinery Sell Machinery Differential Effect (Alternative 1) (Alternative 2) on Income (Alternative 2) Revenues Costs Income (Loss) b. On the basis of the data presented, would it be advisable to lease or sell the machinery Explain The net from selling is S

2. differential analysis for a discontinued product

3. make or buy decision

4. Machine replacement decision

5. sell or process further

Answer 1

Amount in $ Differential Analysis Lease Machinery (Alt 1) or Sell Machinery (Alt 2) May-25 Lease Machinery Sell Machinery Differential Effect on Income (Altenate 1) (Altenate 2) (Altenate 2) Revenue 283300 2746001 -8700 Cost 13730 -11470 Income(Loss) 258100 260870 2770 25200 1.b On the basis of given data, it was advised that Imran Construction company to sell the machinery. The net income from selling the machinery is $260,870 is more than the net income from leasing the machinery i.e., $258,100. Given, 5% Commission on Sale Value i.e., 274,600*5%=13,730

Amount in $ Differential Analysis Continue King Cola (Alt 1) or Discontinue King Cola (Alt 2) Jan-21 Continue King Cola Discontinue King Cola Differential Effect on Income (Altenate 1) (Altenate 2) (Altenate 2) Revenue 234800 -234800 Cost Variable Cost of Goods Sold 95700 -95700 Variable Operating expenses 115020 -115020 Fixed Costs 41280 41280 Income (Loss) - 17200 -41280 -24080 Working Given Cost of Goods Sold was 13% are Fixed i.e., 110,000*13%=14,300 Operating expenses was 19% are fixed i.e., 142,000*19%=26,980 Therefore total Fixed Cost =14,300+26,980 =41,280 Since, Fixed cost was not affected, if the product is Discontinue. Variable Cost of Goods Sold = 110,000-14,300 =95,700 Variable Operating expenses =142,000-26,980 =115,020

Amount in $ Differential Analysis Make Carrying Case (Alt 1) or Buy Carrying Case (Alt 2) Feb-24 Make Carrying Case Buy Carrying Case Differential Effect on Income (Altenate 1) (Altenate 2) (Altenate 2) Sales Price 0 0 Cost: Purchase Price 60 60 Direct Material Per Unit -26 Direct Labour Per Unit 18 Variable Factory Overheads per unit 2.7 Fixed Factory Overheads per unit 4.5 4.5 Income(Loss) -51.2 -64.5 26 -18 -2.7 -13.3 Working Variable Factory Overheads per unit is 15% of Direct Labour cost i.e., 18*15%=2.7 Given, total Factory Overheads are 40% which is $7.2-$2.7(Variable)=$4.5 is Fixed, which is not changed by making or buying outside

4.a Amount in $ Differential Analysis Continue with Old Machine (Alt 1) or Replace Old Machine (Alt 2) Apr-29 Continue with Old Machine Replace Old Machine Differential Effect on Income (Altenate 1) (Altenate 2) (Altenate 2) Revenue: Proceeds from sale of old machine 0 64700 64700 Costs: Purchase price 0 4864001 486400 Variable production cost(8 Years) 1244800 810400 -434400 Income (Loss) -1244800 -1232100 12700 From the given data, it is advisable to company to Replace Old Machine with New Since the Differential effect on income is positive 4.b There is no Sunk Cost in the given data. Sunk Cost = 0

Amount in $ Differential Analysis Sell Rough-Cut (Alt 1) or Process Further into Finished Cut (Alt 2) Aug-09 Process Further into Differential Effect Sell Rough-Cut Finished Cut on Income (Altenate 1) (Altenate 2) (Altenate 2) Revenues, per 100board ft. 546 768 222 Costs, per 100board ft. 378 527 149 Income(Loss) per 100board ft. 1681 241 73 From the given data, it is better to process further into Finished cut. Since, Differential Effect on Income is positive