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 $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 $33.200 per year for this machine Information on two alternative replacement machines follows. Alternative A Alternative B Cost Variable manufacturing costs per year $ 121,000 112,000 22,200 10,500 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 NETINCOME Cost to buy new machine Cash received to trade in old machine Reduction in variable manufacturing costs Total change in net income Calculate the total change in net income if Alternative B is adopted (cash outflows should be indicated by a minus sign.)
Explanation / Answer
Alternative A:Increase or (decrease in net income) cost to buy new machine -121,000 cash received to trade in old machine 46,000 redution in variable manufacturing costs 44000 total change in net income -31,000 Alternative B:Increase or (decrease in net income) cost to buy new machine -112,000 cash received to trade in old machine 46,000 redution in variable manufacturing costs 90800 total change in net income 24,800 Alternative B
