Exercise 25-26 Keep or replace LO A1 Xinhong Company is considering replacing on
ID: 2527534 • Letter: E
Question
Exercise 25-26 Keep or replace LO A1 Xinhong Company is considering replacing one of its manufacturing machines. The machine has a book value of $43,000 and a remaining useful life of 4 years, at which time its salvage value will be zero. It has a current market value of $53,000. Varlable manufacturing costs are $33,200 per year for this machine. Information on two alternative replacement machines follows. Alternative A $122, 000 22,700 Alternative B $114,000 Cost Variable manufacturing costs per year 10,900 1. Calculate the total change in net income if Alternative A and B is adopted. 2. 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 Required 1Required 2 Calculate the total change in net income if Alternative A and B is adopted. (Cash outflows should be indicated by a minus sign INCREASE OR (DECREASE) IN NET INCOME ALTERNATIVE ALTERNATIVE B Cost to buy new machine Cash received to trade in old machine Reduction in variable man Total change in net income costs Required 1 Required 2 >Explanation / Answer
Alternative A:Increase or (decrease in net income) cost to buy new machine -122,000 cash received to trade in old machine 53,000 redution in variable manufacturing costs (33200-22700)*4 42000 total change in net income -27,000 Alternative B:Increase or (decrease in net income) cost to buy new machine -114,000 cash received to trade in old machine 53,000 redution in variable manufacturing costs (33200-10900)*4 89200 total change in net income 28,200 Alternative B
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