Question

Differential Analysis for a Lease or Sell Decision

Burlington Construction Company is considering selling excess machinery with a book value of $282,600 (original cost of $401,500 less accumulated depreciation of $118,900) for $275,500, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $285,900 for five years, after which it is expected to have no residual value. During the period of the lease, Burlington Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,100.

a. Prepare a differential analysis dated January 15 to determine whether Burlington Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to indicate a loss.

Differential Analysis
Lease (Alt. 1) or Sell (Alt. 2) Machinery
January 15
	Lease Machinery (Alternative 1)	Sell Machinery (Alternative 2)	Differential Effects (Alternative 2)
Revenues	$	$	$
Costs
Profit (Loss)	$	$	$

Answer 1

a. Prepare a differential analysis dated January 15 to determine whether Burlington Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to indicate a loss.

Differential Analysis
Lease (Alt. 1) or Sell (Alt. 2) Machinery
January 15
	Lease Machinery (Alternative 1)	Sell Machinery (Alternative 2)	Differential Effects (Alternative 2)
Revenues	$285900	$275500	-10400
Costs	-25100	-13775	11325
Profit (Loss)	$260800	$261725	$925