Xinhong Company is considering replacing one of its manufacturing machines. The
ID: 2528196 • Letter: X
Question
Xinhong Company is considering replacing one of its manufacturing machines. The machine has a book value of $36,000 and a remaining useful life of 4 years, at which time its salvage value will be zero. It has a current market value of $46,000. Variable manufacturing costs are $33,400 per year for this machine. Information on two alternative replacement machines follows.
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?
Alternative A --- Calculate the total change in net income if Alternative A is adopted. (Cash outflows should be indicated by a minus sign.)
Xinhong Purchase---Should Xinhong keep or replace its manufacturing machine? If the machine should be replaced, which alternative new machine should Xinhong purchase?
Alternative A Alternative B Cost $ 117,000 $ 111,000 Variable manufacturing costs per year 22,100 10,900Explanation / Answer
Answers
ALTERNATIVE A: INCREASE OR (DECREASE) IN NET INCOME
ALTERNATIVE B: INCREASE OR (DECREASE) IN NET INCOME
Cost to buy new machine
$ (1,17,000.00)
$ (1,11,000.00)
Cash received to trade in old machine
$ 46,000.00
$ 46,000.00
Reduction in variable manufacturing costs
$ 45,200.00
$ 90,000.00
Total change in net income
$ (25,800.00)
$ 25,000.00
ALTERNATIVE A: INCREASE OR (DECREASE) IN NET INCOME
ALTERNATIVE B: INCREASE OR (DECREASE) IN NET INCOME
Cost to buy new machine
$ (1,17,000.00)
$ (1,11,000.00)
Cash received to trade in old machine
$ 46,000.00
$ 46,000.00
Reduction in variable manufacturing costs
$ 45,200.00
$ 90,000.00
Total change in net income
$ (25,800.00)
$ 25,000.00
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