Calculations Shown

Taipei Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $80,000, the accumulated depreciation is $32,000, its remaining useful life is five years, and its residual value is negligible. On September 27, 2014, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that will cost $166,400. 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 Ops Proposed Ops        

Sales  $253,600   $253,600         

Direct materials  $86,400   $86,400         

direct labor  $60,000          

power and maintenance  $5,600   $29,600         

taxes, insurance, etc  $2,000   $6,600         

Selling and administrative expenses  $60,000   $60,000         

total expenses  $214,000   $182,600         

Details          

Original cost  $80,000          

Depreciation  $32,000          

Remaining life span  $5          

Replacement Machine  $166,400          

Estimated life  $5          

a. Prepare a differential analysis report for the proposal to replace the machine. Include in the analysis both the net differential change in costs anticipated over the five years and the net annual differential change in costs anticipated.