Answered

IDNLearn.com is your trusted platform for finding reliable answers. Ask anything and receive thorough, reliable answers from our community of experienced professionals.

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 $33,700 per year for this machine. Information on two alternative replacement machines follows. Alternative A Alternative B Cost$121,000 $118,000 Variable manufacturing costs per year 22,000 10,800 Calculate the total change in net income if Alternative A, B is adopted. Should Xinhong keep or replace its manufacturing machine

Sagot :

Anthougoidn

Answer:

Xinhong Company

                                              Alternative A   Alternative B

1. If Alternative 2 is adopted,

the change in net income        ($8,550)            $3,400

2. Xinhong should replace its manufacturing machine with Alternative B.

Explanation:

a) Data and Calculations:

                                               Old Machine              Alternatives 2

                                                                       Alternative A   Alternative B

Book value                               $40,000

Current market value                50,000          $121,000           $118,000

Variable manufacturing cost     33,700             22,000              10,800

Useful life                                  4 years          4 years              4 years

Straight-line Depreciation exp. 10,000             30,250             29,500

Total annual costs                  $43,700           $52,250          $40,300

If Alternative 2 is adopted,

the change in net income                              ($8,550)            $3,400

With Alternative A, the change = reduced net income by $8,550 ($52,250 - $43,700)

With Alternative B, the change = increased net income by $3,400 ($43,700 - $40,300)

We appreciate every question and answer you provide. Keep engaging and finding the best solutions. This community is the perfect place to learn and grow together. Your search for solutions ends at IDNLearn.com. Thank you for visiting, and we look forward to helping you again.