Exercise 10-12 Keep or replace LO A1

Xinhong Company is considering replacing one of its manufacturing machines. The machine has a book value of $42,000 and a remaining useful life of 5 years, at which time its salvage value will be zero. It has a current market value of $52,000. Variable manufacturing costs are $33,800 per year for this machine. Information on two alternative replacement machines follows.

	Alternative A				Alternative B
Cost	$	123,000			$	113,000
Variable manufacturing costs per year		22,500				10,300

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?