Exercise 23-12 Keep or replace LO A1 Xinhong Company is considering replacing on
ID: 2555921 • Letter: E
Question
Exercise 23-12 Keep or replace LO A1 Xinhong Company is considering replacing one of its manufacturing machines. The machine has a book value of $38,000 and a remaining useful life of 4 years, at which time its salvage value will be zero. It has a current market value of $48,000. Variable manufacturing costs are $33,800 per year for this machine. Information on two alternative replacement machines follows. Alternative A Alternative B 117,000 111,000 Cost Variable manufacturing costs per year 22,600 10,600 Calculate the total change in net income if Alternative A is adopted. (Cash outflows should be indicated by a minus sign.) ALTERNATIVE A: INCREASE OR (DECREASE) IN NET OME Cost to buy new machine Cash received to trade in old machine Reduction in variable manufacturing costs Total change in net income e atsh outows should bo Indicated by a minus sign.) ALTERNATIVE B: INCREASE OR (DECREASE) IN NET INCOME Cost to buy new machine Cash received to trade in old machine Reduction in variable manufacturing costs Total change in net incomeExplanation / Answer
Xinhong should replace its manufacturing machine with alternative B.
Alternative A Alternative B Cost to buy new machine ($117,000) ($111,000) Cash received to trade in old machine $48,000 $48,000 Reduction in variable manufacturing costs ($33,800 - $22,600) x 4 ($33,800 - $10,600) x 4 Total change in net income ($24,200) $29,800Related Questions
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