Check my workCheck My Work button is now enabled

Item 9

Item 9 10 points

Xinhong Company is considering replacing one of its manufacturing machines. The machine has a book value of $40,000 and a remaining useful life of four years, at which time its salvage value will be zero. It has a current market value of $50,000. Variable manufacturing costs are $33,300 per year for this machine. Information on two alternative replacement machines follows.

	Alternative A				Alternative B
Cost	$	123,000			$	119,000
Variable manufacturing costs per year		22,000				10,400

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?

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 INCOME
Cost to buy new machine
Cash received to trade in old machine
Reduction in variable manufacturing costs
Total change in net income	$0

Calculate the total change in net income if Alternative B is adopted. (Cash outflows should be 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 income	$0