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

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:

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

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

u = 30

continuing your method

= +

subtract from both sides

= - thus

= -

= ⇒ u = 30