Xinhong Company is considering replacing one of its
manufacturing machines. The machine has a book value of $38,000 and a remaining
useful life of 5 years, at which time its salvage value will be zero. It has a
current market value of $48,000. Variable manufacturing costs are $33,000 per
year for this machine. Information on two alternative replacement machines
follows.
Alternative A
|
Alternative B
|
|||||
Cost
|
$
|
117,000
|
$
|
117,000
|
||
Variable manufacturing costs per year
|
22,100
|
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
Net Income
|
|
Cost
to buy new machine
|
117,000
|
Cash
received to trade in old machine
|
38,000
|
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