Xinhong Company is considering replacing one of its manufacturing machines. The

Question

Xinhong Company is considering replacing one of its manufacturing machines. The machine has a book value of $41,000 and a remaining useful life of 4 years, at which time its salvage value will be zero. It has a current market value of $51,000. Variable manufacturing costs are $33,000 per year for this machine. Information on two alternative replacement machines follows te $121,000 Cost Variable manufacturing costs per year $115,000 11,000 22,200 Calculate the total change in net income if Alternative A, B is adopted. Should Xinhong keep or replace its manufacturing machine? If the machine should be replaced, which alternative new machine should Xinhong purchase? Complete this question by entering your answers in the tabs below. Xinhong Purchase Alternative A Alternative B Calculate the total change in net income if Alternative A is adopted. (Cash outflows should be indicated by a minus sign) IVE A: INCREASE OR (DECREASE) IN NET Cost to buy new machine Cash received to trade in old machine Reduction in variable manufacturing costs Total change in net income Alternative B>

Explanation / Answer

ALTERNATIVE A: INCREASE OR (DECREASE) IN NET INCOME Cost to buy new machine ($121,000) Cash received to trade in old machine 51,000 Reduction in variable manufacturing costs 43,200 Total change in net income ($26,800) ALTERNATIVE B: INCREASE OR (DECREASE) IN NET INCOME Cost to buy new machine ($115,000) Cash received to trade in old machine 51,000 Reduction in variable manufacturing costs 88,000 Total change in net income $24,000 Aternative B should be selected

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