Exercise 23-12 Keep or replace LO A1

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	$	118,000		$	120,000
Variable manufacturing costs per year		22,200			10,300

Calculate the total change in net income if Alternative A is adopted. (Cash outflows should be indicated by a minus sign.)

Calculate the total change in net income if Alternative B is adopted. (Cash outflows should be indicated by a minus sign.)

Should Xinhong keep or replace its manufacturing machine? If the machine should be replaced, which alternative new machine should Xinhong purchase?

	A) Keep the manufacturing machine
	B) Alternative A
	C) Alternative B