Answer:
a. The total change in net income if Alternative A is adopted would be -$27,000
b. The total change in net income if Alternative B is adopted is $24,000
Explanation:
a. In order to calculate the total change in net income if Alternative A is adopted we would have to make the following calculation:
total change in net income if Alternative A is adopted=Cost to buy new machine+Cash received to trade in old machine+Reduction in variable manufacturing costs.
Reduction in variable manufacturing costs=($33,800-$22,800)*4
Reduction in variable manufacturing costs=$44,000
total change in net income if Alternative A is adopted=-$ 117,000 + $46,000 + $44,000=
-$27,000
The total change in net income if Alternative A is adopted would be -$27,000
b. In order to calculate the total change in net income if Alternative B is adopted we would have to make the following calculation:
total change in net income if Alternative A is adopted=Cost to buy new machine+Cash received to trade in old machine+Reduction in variable manufacturing costs.
Reduction in variable manufacturing costs=($33,800-$10,300)*4
Reduction in variable manufacturing costs=$94,000
total change in net income if Alternative B is adopted=-$ 116,000 + $46,000 + $94,000=
$24,000
The total change in net income if Alternative B is adopted is $24,000
