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Relevant Costs and Differential Analysis: Check Sorting Machine

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Coastal Community Bank paid $50,000 for a check sorting machine in January 2005. The machine had an estimated life of 10 years and annual operating costs of $40,000, excluding depreciation. Although management is pleased with the machine, recent technological advances have made it obsolete. Consequently, as of January 2009, the machine has a book value of $30,000, a remaining operating life of 6 years, and a salvage value of $0.
The manager of operations is evaluating a proposal to acquire a new optical scanning and sorting machine. The new machine would cost $90,000 and reduced annual operating costs to $20,000, excluding depreciation. Because of expected technological improvements, the manager believe the new machine will have an economic life of 6 years and no salvage value at the end of that life. Prior to signing the papers authorizing the acquisition of the new machine, the president of the Coastal Community Bank prepared the following analysis;

Six year savings [($40,000 - $20,000) x 6 years] $120,000
Cost of new machine (90,000)
Lost on disposal of old machine (30,000)
Advantage (disadvantage) of replacement $ 0

After looking at these numbers, he rejected the proposal and commented that he was â??tired of looking at marginal projects. This bank is in business to make a profit, not to break even. If you want to break even go and work for the government.

a. Evaluate the president's analysis.
b. Prepare a differential analysis of six-year totals for the old and the new machines.
c. Speculate on some limitations of the model or other issues that might be a factor in making a final

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Please see the attached answer.

"The president's analysis considers two factors viz the differential cost savings between the two alternatives and the sunk cost of the old machine. The analysis is correct in respect of taking the differential cost savings between the two ...

Solution Summary

Relevant costs and differential analysis checking sorting machines are examined.

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1. Statement of problem. Provide a clear justification with evidence on why this study is relevant to your field and worthy of doctoral-level study. Support your efforts using scholarly information published within the past 5 years to ensure relevancy. Remember the problem statement should reflect your degree type (applied or research).
2. Purpose statement (how your study will address the problem using qualitative methodology). This statement should flow from the problem statement.
3. Research questions (make sure there is alignment with the problem and purpose).
4. Find 2 to 3 articles related to your topic of interest and provide an overview of the research methodology and design where you specifically discuss the elements below from each article and discuss how each applies (or does not apply to your current study):
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5. Based on your analysis above, what seems most applicable to your hypothetical study and why? Be sure to discuss the qualitative design, population and sample, data collection, analysis, and trustworthiness.
6. Discussion of the inherent strengths and challenges of your hypothetical study to include any ethical considerations that might need to be addressed in the study.

Make sure to support all assertions and research choices, using the attached resources as well as additional scholarly literature.
Make sure to justify steps and choices, using the attached resources to help support your points.
Be sure to use scholarly sources to support all assertions and research decisions. Ensure it is supported by at least 3 to 5 scholarly resources within the past 5 years to ensure relevancy. Also keep in mind that your problem statement should reflect a PhD degree.

Length: 5 to 7 pages

Using current APA standards.

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