Xinhong Company is considering replacing one of its manufacturing machines. The
ID: 2481538 • Letter: X
Question
Xinhong Company is considering replacing one of its manufacturing machines. The machine has a book value of S38.000 and a remaining useful life of 4 years, at which time its salvage value will be zero. It has a current market value of S48.000. Variable manufacturing costs are S33.000 per year for this machine. Information on two alternative replacement machines follows. Calculate the total change in net income if Alternative A is adopted. (Cash outflows should be indicated by a minus sign.) Cost to buy new machine Cash received to trade in old machine Reduction in variable manufacturing costs Total change in net incomeExplanation / Answer
Alternative A: Increase or (Decrease) in Net Income
Cost to buy new machine
-$115,000
Cash received to trade in old machine
$48,000
Reduction in variable manufacturing costs
($33,000 - $22,700)*4
$41,200
Total change in net income
-$25,800
Alternative A: Increase or (Decrease) in Net Income
Cost to buy new machine
-$115,000
Cash received to trade in old machine
$48,000
Reduction in variable manufacturing costs
($33,000 - $22,700)*4
$41,200
Total change in net income
-$25,800
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