Question

In: Accounting

Boyer Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic...

Boyer Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $82,900, the accumulated depreciation is $33,200, 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 $172,400. 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:

Present
Operations
Proposed
Operations
Sales $262,800 $262,800
Direct materials $89,500 $89,500
Direct labor 62,200
Power and maintenance 5,800 30,700
Taxes, insurance, etc. 2,100 6,900
Selling and administrative expenses 62,200 62,200
Total expenses $221,800 $189,300

a. Prepare a differential analysis dated May 4 to determine whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). Prepare the analysis over the useful life of the new machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.

Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
May 4
Continue
with Old
Machine
(Alternative 1)

Replace
Old Machine
(Alternative 2)

Differential
Effects
(Alternative 2)
Revenues:
Sales (5 years) $ $ $
Costs:
Purchase price
Direct materials (5 years)
Direct labor (5 years)
Power and maintenance (5 years)
Taxes, insurance, etc. (5 years)
Selling and admin. expenses (5 years)
Profit (Loss) $ $ $

b. Based only on the data presented, should the proposal be accepted?

c. Differences in capacity between the two alternatives is   to consider before a final decision is made.

Solutions

Expert Solution

a. we will prepare analysis for 5 years of useful life

Continue
with Old
Machine
(Alternative 1)

Replace
Old Machine
(Alternative 2)

Differential
Effects
(Alternative 2)
Revenues:
Sales (5 years) $1,314,000[$262,800*5] $1,314,000 $0
Costs:
Purchase price 0 $172,400 -$172,400
Direct materials (5 years) $447,500[$89,500*5] $447,500 $0
Direct labor (5 years) $311,000[$62,200*5] $0 $311,000
Power and maintenance (5 years) $29,000[$5,800*5] $153,500[$30,700*5] -$124,500[$29,000-153,500]
Taxes, insurance, etc. (5 years) $10,500[$2,100*5] $34,500[$6,900*5] -$24,000[$10,500-34,500]
Selling and admin. expenses (5 years) $311,000[62,200*5] $311,000 $0
Profit (Loss) $205,000 [$1,314,000-447,500-311,000-29,000-10,500-311,000] $195,100 -$9,900

b. Theproposalshouldnot be accepted as it will result into loss of $9,900

c. Differences in capacity between the two alternatives is RELEVANT to consider before a final decision is made.

As the capacity willaffect the production /sales and hence weill affect profit.

Please upvote if you find this helpful.in case of query pelase comment.


Related Solutions

Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert...
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 $90,100, the accumulated depreciation is $36,000, 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 $187,400. The automatic machine has an estimated useful...
Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert...
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 $57,300, the accumulated depreciation is $22,900, 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 $119,200. The automatic machine has an estimated useful...
Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert...
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 $25,890, 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 $166,615. The automatic machine has an estimated useful...
Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert...
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 $25,890, 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 $166,615. The automatic machine has an estimated useful...
Differential Analysis for Machine Replacement Taipei Digital Components Company assembles circuit boards by using a manually...
Differential Analysis for Machine Replacement Taipei Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $55,300, the accumulated depreciation is $22,100, its remaining useful life is five years, and its residual value is negligible. On September 27, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that will cost $115,000. The automatic machine has an estimated useful life of five...
Differential Analysis for Machine Replacement Kim Kwon Digital Components Company assembles circuit boards by using a...
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 $90,600, the accumulated depreciation is $36,200, 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 $188,400. The automatic...
Differential Analysis for Machine Replacement Kim Kwon Digital Components Company assembles circuit boards by using a...
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 $68,700, the accumulated depreciation is $27,500, 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 $142,900. The automatic...
Differential Analysis for Machine Replacement Kim Kwon Digital Components Company assembles circuit boards by using a...
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 $59,200, the accumulated depreciation is $23,700, 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 $123,100. The automatic...
Differential Analysis for Machine Replacement Kim Kwon Digital Components Company assembles circuit boards by using a...
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 $87,000, the accumulated depreciation is $34,800, 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 $181,000. The automatic...
To automatically insert electronic components in printed circuit boards for a cell phone production line, a...
To automatically insert electronic components in printed circuit boards for a cell phone production line, a $500,000 surface mount placement (SMP) machine is being evaluated by a manufacturing engineer at Motorolla. Over the 10-year planning horizon, it is estimated the SMP machine will produce annual cost savings of $92,500. The engineer estimates the machine will be worth $50,000 at the end of the 10-year period. Based on the firm’s 10% MARR, how long does it take for the new SMP...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT