Question

Lexigraphic Printing Company is considering replacing a machine that has been used in its factory for four 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	$89,000
Annual depreciation (straight-line)	8,900
Annual manufacturing costs, excluding depreciation	23,600
Annual non-manufacturing 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 non-manufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.

	Required:
1.	Prepare a differential analysis as of April 30 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the total differential income that would result over the six-year period if the new machine is acquired. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.
2.	List other factors that should be considered before a final decision is reached.

Answer 1

Solution 1:

Differential analysis - Lexigraphic Printing Company
Particulars	Use present machine (Alt 1)	Purchase new machine (Alt 2)	Net Increase (Decrease) in Income (Alt 2)
Annual manufacturing cost excluding depreciation	$141,600.00	$41,400.00	$100,200.00
Additional cost of new machine (Purchase price less sale value of existing machine)	$0.00	$90,000.00	-$90,000.00
Total Relevant cost	$141,600.00	$131,400.00	$10,200.00

Total differential income that would result over the 6 year period if the new machine is acquired = $10,200

Solution 2:

There are various other factors athat need to be considered before a final decision is reached. Some of these are as under:

1. Time value of money should be considered before taking decision to purchase new machine.

2. Quality product should not be affected by new machine.

3. New machine should not have any enviormental issues.

4. Productivity should not be hampered due to new machine.