Question description
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 life is five years; and its
residual value is zero. 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
Operation
Proposed
Operation
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
$45,000
$45,000
Total expenses
$174,500
$139,000
1.
Prepare
a differential analysis dated May 4 to determine whether to continue with the
old machine (Alternative 1), or replace it with the new machine (Alternative
2). Prepare the analysis over the useful life of the new machine.
Based
only on the data presented, should the proposal be accepted?
What
other factors should be considered before a final decision is made?
The paper should meet the
following requirements:
Be
2-4 pages in length, not counting the required title and reference pages.
Your paper should include an introduction, a body with at least two fully
developed paragraphs, and a conclusion.
Citations
should adhere to Ace homework tutors – APA style.
Textbook (Managerial
Accounting 13 edition, Warren, Reeve, Duchac).
