Question

Differential Analysis Report for Machine Replacement
Lone Wolf Technologies Inc. assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $60,400, the accumulated depreciation is $24,200, its remaining useful life is five years, and its residual value is zero. A proposal was made to replace the present manufacturing procedure with a fully automatic machine that will cost $113,800. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on current and proposed operations:
Current Operations Proposed Operations
Sales $191,500 $191,500
Direct materials $65,200 $65,200
Direct labor 45,300 15,100
Power and maintenance 4,200 7,200
Taxes, insurance, etc. 1,500 5,000
Selling and administrative
expenses 45,300 45,300
Total expenses $161,500 $137,800
Prepare a differential analysis report for the proposal to replace the machine. Include in the analysis both the net differential change in costs anticipated over the five years and the net annual differential change in costs anticipated.
LONE WOLF TECHNOLOGIES
Replace Machine
Differential Analysis Report
Annual costs and expenses—present machine $
Annual costs and expenses—new machine
Annual differential decrease in costs and expenses
Number of years applicable
Total differential decrease in costs and expenses
Cost of new machine
Net differential decrease in costs and expenses, five-year total
Annual net differential decrease in costs and expenses—new machine

Answer 1

Answer:

The machine of Lone wolf Technologies should be replaced judging by the differential analysis report.

Explanation:

Annual costs and expenses (present machine) = $161,500

Annual costs and expenses (new machine) = $13,7800

Annual differential decrease in costs and expenses = $23,700

Number of years applicable = 5 years

Total differential decrease in costs and expenses, five-year total = $118,500

Cost of new machine = $113,800

Net differential decrease in costs and expenses, five-year total = $4,700

The machine should be replaced!