Exercise 10-10 Keep or replace LO P5

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 five 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	$	117,000			$	112,000
Variable manufacturing costs per year		22,500				10,700

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?