Purchase Solution

Various questions on Differential Analysis

Not what you're looking for?

Ask Custom Question

Exercise 12-1

Miller Construction Company is considering selling excess machinery with a book value of $250,000 (original cost of $375,000 less accumulated depreciation of...
a) Prepare a differential analysis report, dated January 3, 2006, for the lease or sell decision.

Please see attached.

Attachments
Purchase this Solution

Solution Summary

The solution has various questions relating to differential analysis

Solution Preview

The answers are in the attached file

12-1
a.
Proposal to Lease or Sell Machinery
January 3, 2006
Differential revenue from alternatives:
Revenue from lease................................................................. $ 234,000
Proceeds from sale.................................................................. 220,000
Differential revenue from lease...................................................... $14,000
Differential cost of alternatives:
Repair, insurance, and property tax expenses................ $ 23,000
Commission on sale................................................................ 11,000 (5% of 220000)
Differential cost of lease..................................................................... 12,000
Net differential income from lease alternative....................................... $ 2,000

b. Lease the machinery. The net gain from leasing is $2,000.

12-2
a.
Proposal to Discontinue Diet Kola
January 3, 2006

Differential revenue from annual sales of Diet Kola:
Revenue from sales............................................. $ 350,000
Differential cost of annual sales of Diet Kola:
Variable cost of goods sold............................... $180,000*
Variable operating expenses.................... ........ 105,000** 285,000
Annual differential income from sales of Diet Kola.... $ 65,000
* 225,000 × 80% ** 140,000 × 75%
Since the fixed costs will not change, we only need to consider the variable costs

b. Diet Kola should be retained. As indicated by the differential analysis in (a), the income would ...

Purchase this Solution


Free BrainMass Quizzes
Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.