Xinhong Company is considering replacing one of its manufacturing machines. The machine has a book value of $42,000 and a remaining useful life of 5 years, at which time its salvage value will be zero. It has a current market value of $52,000. Variable manufacturing costs are $33,700 per year for this machine. Information on two alternative replacement machines follows.
Alternative A Alternative B
Cost $122,000 $117,000
Variable manufacturing
costs per year 22,900 10,400
Calculate the total change in net income if Alternative A, B is adopted. Should Xinhong keep or replace its manufacturing machine? If the machine should be replaced, which alternative new machine should Xinhong purchase?
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