4a)

Granfield Company has a piece of manufacturing equipment with a book value of $44,500 and a remaining useful life of four years. At the end of the four years the equipment will have a zero salvage value. The market value of the equipment is currently $22,900. Granfield can purchase a new machine for $129,000 and receive $22,900 in return for trading in its old machine. The new machine will reduce variable manufacturing costs by $19,900 per year over the four-year life of the new machine. The total increase or decrease in net income by replacing the current machine with the new machine (ignoring the time value of money) is:

$26,500 increase

$79,600 decrease

$21,600 decrease

$55,150 increase

$26,500 decrease

4b)

Ahngram Corp. has 1,000 defective units of a product that cost $2.70 per unit in direct costs and $5.80 per unit in indirect cost when produced last year. The units can be sold as scrap for $3.30 per unit or reworked at an additional cost of $2.40 and sold at full price of $9.90. The incremental net income (loss) from the choice of reworking the units would be:

rev: 04_22_2016_QC_CS-49637

$4,800.

$0.

($1,800).

$300.

$1,800.

4c)

Soar Incorporated is considering eliminating its mountain bike division, which reported an operating loss for the recent year of $11,000. The division sales for the year were $1,058,000 and the variable costs were $868,000. The fixed costs of the division were $201,000. If the mountain bike division is dropped, 30% of the fixed costs allocated to that division could be eliminated. The impact on operating income for eliminating this business segment would be:

rev: 04_20_2016_QC_CS-49647

$60,300 decrease

$129,700 decrease

$56,500 decrease

$190,000 increase

$190,000 decrease

4d)

Chang Industries has 1,200 defective units of product that have already cost $13.20 each to produce. A salvage company will purchase the defective units as they are for $4.20 each. Chang's production manager reports that the defects can be corrected for $6.80 per unit, enabling them to be sold at their regular market price of $19.40. The incremental income or loss on reworking the units is:

$10,080 loss.

$10,080 income.

$8,160 loss.

$18,240 income.

$15,120 income.