Answer:
Lexigraphic Printing Company
1. Differential Analysis as of April 30:
Old Machine New Machine Difference
Annual revenue $74,200 $74,200
Annual depreciation (straight-line) 8,900 19,950
Annual manufacturing
costs, excluding depreciation 23,600 6,900
Annual nonmanufacturing
operating expenses 6,100 6,100
Total expenses $38,600 $32,950
Annual net income $35,600 $41,250 $5,650
Net income for 6 six years $213,600 $247,500 $33,900
2. Other factors that should be considered are:
B. What effect does the federal income tax have on the decision?
C. What opportunities are available for the use of the $90,000 of funds ($119,700 less $29,700 proceeds from the old machine) that are required to purchase the new machine?
E. Are there any improvements in the quality of work turned out by the new machine?
Explanation:
a) Dat and Calculations:
Old Machine
Cost of machine, 10-year life $89,000
Annual depreciation (straight-line) 8,900
Annual manufacturing costs, excluding depreciation 23,600
Annual nonmanufacturing operating expenses 6,100
Annual revenue 74,200
Current estimated selling price of machine 29,700
New Machine
Purchase price of machine, six-year life $119,700
Annual depreciation (straight-line) 19,950
Estimated annual manufacturing costs, excluding depreciation 6,900
Annual nonmanufacturing operating expenses 6,100
Annual revenue 74,200
Differential Analysis as of April 30:
Old Machine New Machine Difference
Annual revenue $74,200 $74,200
Annual depreciation (straight-line) 8,900 19,950
Annual manufacturing
costs, excluding depreciation 23,600 6,900
Annual nonmanufacturing
operating expenses 6,100 6,100
Total expenses $38,600 $32,950
Annual net income $35,600 $41,250 $5,650
Net income for 6 six years $213,600 $247,500 $33,900
