Business, 18.08.2019 05:10, tiffanybrandy23

Xinhong company is considering replacing one of its manufacturing machines. the machine has a book value of $43,000 and a remaining useful life of 4 years, at which time its salvage value will be zero. it has a current market value of $53,000. variable manufacturing costs are $33,500 per year for this machine. information on two alternative replacement machines follows. alternative a alternative b cost $ 119,000 $ 117,000 variable manufacturing costs per year 22,300 11,000 calculate the total change in net income if alternative a, b is adopted. should xinhong keep or replace its manufacturing machine

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answered: 182075

Option A financial disadventage of 21,200

Option B financial advantage of 26,000

The company should go for alternative B

Explanation:

old A Differential

Purchase -119000-119,000

Proceeds from sale 53,000 53,000

Variable cost -134,000 -89,200 44,800

Total -134000 -155200 -21,200

old B Differential

Purchase -117000-117,000

Proceeds from sale 53,000 53,000

Variable cost -134,000 -44,000 90,000

Total -134000 -108000 26,000

Notes:

The book value is irrelevant for this question.When going for either alternative we are selling the old machine at their fair value. So we have proceeds from the saleThen the variable cost of the old and each alternative are multiply by 4 becuase, that is the useful life of the machines in year.We add them all and check the difference

Alternative A has a negative differential income, so it is not viable

Alternative B has a positive differential income, it is viable.

answered: Guest

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answered: Guest

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Xinhong company is considering replacing one of its manufacturing machines. the machine has a book v...