a. 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.
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- Newmarge Products Inc. is evaluating a new design for one of its manufacturing processes. The new design will eliminate the production of a toxic solid residue. The initial cost of the system is estimated at 860,000 and includes computerized equipment, software, and installation. There is no expected salvage value. The new system has a useful life of 8 years and is projected to produce cash operating savings of 225,000 per year over the old system (reducing labor costs and costs of processing and disposing of toxic waste). The cost of capital is 16%. Required: 1. Compute the NPV of the new system. 2. One year after implementation, the internal audit staff noted the following about the new system: (1) the cost of acquiring the system was 60,000 more than expected due to higher installation costs, and (2) the annual cost savings were 20,000 less than expected because more labor cost was needed than anticipated. Using the changes in expected costs and benefits, compute the NPV as if this information had been available one year ago. Did the company make the right decision? 3. CONCEPTUAL CONNECTION Upon reporting the results mentioned in the postaudit, the marketing manager responded in a memo to the internal audit department indicating that cash inflows also had increased by a net of 60,000 per year because of increased purchases by environmentally sensitive customers. Describe the effect that this has on the analysis in Requirement 2. 4. CONCEPTUAL CONNECTION Why is a postaudit beneficial to a firm?Cost Issues Deskin Company purchased a new machine to be used in its operations. The new machine was delivered by the supplier, installed by Deskin, and placed into operation. It was purchased under a long-term payment plan for which the interest charges approximated the prevailing market rates. The estimated useful life of the new machine is 10 years, and its estimated residual (salvage) value is significant. Normal maintenance was performed to keep the new machine in usable condition. Deskin also added a wing to the manufacturing building that it owns. The addition is an integral part of the building. Furthermore, Deskin made significant leasehold improvements to office space used as corporate headquarters. Required: 1. What costs should Deskin capitalize for the new machine? 2. Explain how Deskin should account for the normal maintenance performed on the new machine. 3. Explain how Deskin should account for the wing added to the manufacturing building. Where should the added wing be reported on Deskins financial statements? 4. Explain how Deskin should account for the leasehold improvements made to its office space. Where should the leasehold improvements be reported on Deskins financial statements?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 $75,000, the accumulated depreciation is $30,000, 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 $141,600. 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 Proposed Operations Operations Sales $237,800 $237,800 Direct materials $81,000 $81,000 Direct labor 56,300 18,800 Power and maintenance 5,300 9,000 Taxes, insurance, etc. 1,900 6,200 Selling and administrative expenses 56,300 56,300 Total expenses $200,800 $171,300 a. Prepare a differential analysis report…
- 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 $94,000, the accumulated depreciation is $37,600, 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 $177,100. 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: CurrentOperations ProposedOperations Sales $298,000 $298,000 Direct materials $101,500 $101,500 Direct labor 70,500 23,500 Power and maintenance 6,600 11,300 Taxes, insurance, etc. 2,400 7,800 Selling and administrative expenses 70,500 70,500 Total expenses $251,500…Differential Analysis for Machine Replacement Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $60,000, the accumulated depreciation is $24,000, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $180,000. 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 present and proposed operations: Present Operations Proposed Operations Sales $205,000 $205,000 Direct materials $72,000 $72,000 Direct labor 51,000 — Power and maintenance 5,000 18,000 Taxes, insurance, etc. 1,500 4,000 Selling and administrative expenses…Differential Analysis for Machine Replacement Boyer Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $61,100, the accumulated depreciation is $24,400, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $127,100. 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 present and proposed operations: Sales Direct materials Direct labor Power and maintenance Taxes, insurance, etc. Selling and administrative expenses Total expenses Revenues: Sales (5 years) Costs: Present Operations $193,700 $66,000 45,800 a. Prepare a differential analysis dated May 4 to determine…
- Differential Analysis for Machine Replacement Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $60,000, the accumulated depreciation is $24,000, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $180,000. 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 present and proposed operations: Present Proposed Operations Operations Sales $205,000 $205,000 Direct materials $72,000 $72,000 Direct labor 51,000 Power and maintenance 5,000 18.000 Taxes, insurance, etc. 1,500 4,000 Selling and administrative expenses 45,000 45,000 Total expenses $174,500…Differential Analysis for Machine Replacement Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $67,700, the accumulated depreciation is $27,100, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $140,800. 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 present and proposed operations: Present Operations Proposed Operations Sales $214,600 $214,600 Direct materials $73,100 $73,100 Direct labor 50,800 — Power and maintenance 4,700 25,000 Taxes, insurance, etc. 1,700 5,600 Selling and administrative expenses…Differential Analysis for Machine Replacement Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $88,800, the accumulated depreciation is $35,500, its remaining useful life is 5 years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $184,700. The automatic machine has an estimated useful life of 5 years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations: PresentOperations ProposedOperations Sales $281,500 $281,500 Direct materials $95,900 $95,900 Direct labor 66,600 — Power and maintenance 6,200 32,900 Taxes, insurance, etc. 2,200 7,400 Selling and administrative expenses 66,600…
- Differential Analysis for Machine Replacement Ridgeway Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $61,800, the accumulated depreciation is $24,700, its remaining useful life is 5 years, and its residual value is negligible. On October 1 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $128,500. The automatic machine has an estimated useful life of 5 years and no significant residual value. For use in evaluating the proposal, the managerial accountant accumulated the following annual data on present and proposed operations: Sales Direct materials Direct labor Power and maintenance Taxes, insurance, etc. Selling and administrative expenses Total expenses Present Proposed Operations Operations $195,900 $195,900 $66,700 $66,700 46,400 4,300 1,500 46,400 $165,300 Differential…Differential Analysis for Machine Replacement Boyer Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $65,600, the accumulated depreciation is $26,200, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $136,400. 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 present and proposed operations: Sales Direct materials Direct labor Power and maintenance Taxes, insurance, etc. Selling and administrative expenses Total expenses Revenues: Present Operations $208,000 $70,800 49,200 4,600 1,600 49,200 $175,400 a. Prepare a differential analysis dated May 4 to…Differential Analysis for Machine Replacement Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $78,700, the accumulated depreciation is $31,500, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $163,700. 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 present and proposed operations: Present Operations Proposed Operations Sales $249,500 $249,500 Direct materials $85,000 $85,000 Direct labor 59,000 — Power and maintenance 5,500 29,100 Taxes, insurance, etc. 2,000 6,500 Selling and administrative expenses…