Should xinhong keep or replace its manufacturing machine

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Question :

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 $33,400 per year for this machine. Information on two alternative replacement machines follows.

 

Alternative A

Alternative B

Cost

$120,000

$112,000

Variable manufacturing costs per year

22,700

10,400

What 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?

Alternative A: Increase or (Decraese) 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

Alternative B: Increase or (Decraese) 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

Reference no: EM132318359

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