Question

1. Sure-Bilt Construction Company is considering selling excess machinery with a book value of $281,600 (original cost of $400,100 less accumulated depreciation of $118,500) for $277,300, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $285,600 for five years, after which it is expected to have no residual value. During the period of the lease, Sure-Bilt Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $26,400.

   a. Prepare a The area of accounting concerned with the effect of alternative courses of action on revenues and costs.differential analysis, dated May 25 to determine whether Sure-Bilt should lease (Alternative 1) or sell (Alternative 2) the machinery. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

   Differential Analysis
   Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2)
   May 25
   	Lease Machinery (Alternative 1)	Sell Machinery (Alternative 2)	Differential Effect on Income (Alternative 2)
   Revenues	$	$	$
   Costs
   Income (Loss)	$	$	$

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   b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain.
   

   • Lease the machinery
   • Sell the machinery

   The net

   • gain
   • loss
   from selling is $.

Answer 1

a). Differential analysis:

Here in selling machinery, costs are 5% of revenues.

Differential Analysis Sell Machinery (Alternative 2) Differential Effect on Income (Alternative 2) Lease Machinery (Alternative1) S285,600.00 S 7300.00$ (13,865.00)$ 263,435.00 $ (8,300.00) 12,535.00 4,235.00 Revenues Costs Income (Loss) 26,400.00)$ (13, 259,200.00 S

Here you can see that the Income is higher in case of Selling Machinery instead of Leasing It. Differential Income is $4,235 which is higher in selling than leasing.

b). On basis of above calculation, it is advisable to sell the machinery. There will be higher income of $4,235.