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Doss [256]
3 years ago
7

Exercise 23-10 Keep or replace LO P5Xinhong Company is considering replacing one of its manufacturing machines. The machine has

a book value of $35,000 and a remaining useful life of four years, at which time its salvage value will be zero. It has a current market value of $45,000. Variable manufacturing costs are $33,800 per year for this machine. Information on two alternative replacement machines follows. Alternative A Alternative BCost$124,000 $115,000 Variable manufacturing costs per year 22,100 10,700 Calculate the total change in net income if Alternative A, B is adopted. Should Xinhong keep or replace its manufacturing machine
Business
1 answer:
viva [34]3 years ago
3 0

Answer:

Xinhong should replace its manufacturing machine

Explanation:

                 Xinhong Company Alternative A

<em>                 </em><em>Increase or decrease in net income</em>

Particulars                                                          Amount

Cost to buy new machine                              -$124,000.00

Cash received to trade in old machine          $45,000.00

Reduction in variable manufacturing cost     <u>$46,800.00</u>

($33,800 - $22,100)*4

Total change in net income                           -<u>$32,200.00</u>

                   Xinhong Company Alternative B

<em>                  Increase or decrease in net income</em>

Particulars                                                          Amount

Cost to buy new machine                               -$115,000.00

Cash received to trade in old machine           $45,000.00

Reduction in variable manufacturing cost      <u>$92,400.00</u>

($33,800 - $10,700)*4

Total change in net income                            <u>$22,400.00</u>

<u>Conclusion</u>: Xinhong should replace the existing machine as incremental net income is high for the alternative.

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