Answered: Xinhong Purchase Alternative A…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Xinhong Company is considering replacing one of its manufacturing machines. The machine has a book value of $41,000 and a remaining useful life of five years, at which time its salvage value will be zero. It has a current market value of $51,000. Variable manufacturing costs are $33,300 per year for this machine. Information on two alternative replacement machines follows.

	Alternative A		Alternative B
Cost	$	118,000		$	118,000
Variable manufacturing costs per year		22,200			10,700

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?

Xinhong
Purchase
Alternative A
Alternative B
Calculate the total change in net income if Alternative A is adopted. (Cash outflows should be
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

Xinhong
Purchase
Alternative A
Alternative B
Calculate the total change in net income if Alternative B is adopted. (Cash outflo
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

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