#2: Continue or Discontinue / Keep or Eliminate (6 points) The condensed income statement for Avalon Co. for the past year is as follows: Sales Less variable costs Contribution margin Less fixed costs Income (loss) from operations Product X Y $950,000 $600,000 820,000 490,000 $ 130,000 $110,000 160,000 55,000 $ (30,000) $ 55,000 Management is considering the discontinuance of the manufacture and sale of Product X at the beginning of the current year. The discontinuance would have no effect on the total fixed costs and expenses or on the sales of Product Y. Should Avalon Co. discontinue Product X? What is the incremental net income or net loss for the current year that will result from the elimination of Product X? #3: Keep or Replace Equipment (6 points) Patton United has a machine that stiches embroidery on hats. The machine has a book value of $270,000 and a remaining useful life of 5 years and can be sold for $40,000. A new, more efficient machine is available at a cost of $450,000 that will have a 5-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $650,000 to $580,000. Should Patton United replace the machine? What is the incremental net income or net loss if Patton United chooses to replace the machine