Differential analysis for machine replacement proposal Franklin Printing Company is considering replacing a machine that has been used in its factory for 4 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: $108,500
- Annual depreciation (straight-line): $10,850
- Annual manufacturing costs, excluding depreciation: $37,900
- Annual nonmanufacturing operating expenses: $13,000
- Annual revenue: $94,300
- Current estimated selling price of the machine: $36,100
New Machine:
- Cost of machine, 6-year life: $138,600
- Annual depreciation (straight-line): $23,100
- Estimated annual manufacturing costs, exclusive of depreciation: $18,200
- Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.
