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10-12

Xinhong Company is considering replacing one of its manufacturing machines. The machine has a book value of $39,000 and a remaining useful life of 5 years, at which time its salvage value will be zero. It has a current market value of $49,000. Variable manufacturing costs are $33,800 per year for this machine. Information on two alternative replacement machines follows. Alternative A $123,000 Alternative B $110,000 Cost Variable manufacturing costs per year 22,100 10,100 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?Xinhong Purchase Alternative A Alternative B Calculate the total change in net income if Alternative A is adopted. (Cash ALTERNATIVE A: INCREASE OR (DECREASE) IN NET INCOME Cost to buy new machine Cash received to trade in old machine Reduction Total change in net income in variable manufacturing costsALTERNATIVE B: INCREASE OR (DECREASE) IN NET INCOME Cost to buy new machine Cash received to trade in old machine Reduction Total change in net income in variable manufacturing costsWhich option should Xinhong choose?

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