A company is considering replacing an old piece of machinery, which cost $598,900 and has $352,300 of accumulated depreciation to date, with a new machine that has a purchase price of $483,400. The old machine could be sold for $61,000. The annual variable production costs associated with the old machine are estimated to be $156,500 per year for 8 years. The annual variable production costs for the new machine are estimated to be $100,700 per year for 8 years.Question Content Areaa.1 Prepare a differential analysis dated December 10 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.Differential AnalysisContinue with (Alt. 1) or Replace (Alt. 2) Old MachineDecember 10Line Item DescriptionContinue withOld Machine(Alternative 1)Replace Old Machine(Alternative 2)Differential Effects(Alternative 2)Revenues: Proceeds from sale of old machine$Proceeds from sale of old machine$Proceeds from sale of old machine$Proceeds from sale of old machineCosts: Purchase pricePurchase pricePurchase pricePurchase priceVariable productions costs (8 years)Variable productions costs (8 years)Variable productions costs (8 years)Variable productions costs (8 years)Profit (loss)$Profit (loss)$Profit (loss)$Profit (loss) Question Content Areaa.2 Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.Question Content Areab. What is the sunk cost in this situation?The sunk cost is fill in the blank 1 of 1$.

Differential Analysis :— This analysis shows the comparison between two different alternatives. A…

Answered: annual variable production costs…

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter12: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...

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a.1 Prepare a differential analysis dated December 10 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.

Differential AnalysisContinue with (Alt. 1) or Replace (Alt. 2) Old MachineDecember 10

Line Item Description	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effects (Alternative 2)
Revenues:
Proceeds from sale of old machine	$Proceeds from sale of old machine	$Proceeds from sale of old machine	$Proceeds from sale of old machine
Costs:
Purchase price	Purchase price	Purchase price	Purchase price
Variable productions costs (8 years)	Variable productions costs (8 years)	Variable productions costs (8 years)	Variable productions costs (8 years)
Profit (loss)	$Profit (loss)	$Profit (loss)	$Profit (loss)

Question Content Area

a.2 Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.

Question Content Area

b. What is the sunk cost in this situation?
The sunk cost is fill in the blank 1 of 1$.

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