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)
