Question 1 - Xu Company is considering replacing one of its manufacturing machines. The machine has a book value of $38,000 and a remaining useful life of 4 years, at which time its salvage value will be zero. It has a current market value of $48,000. Variable manufacturing costs are $33,200 per year for this machine. Information on two alternative replacement machines follows.
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Alternative A
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Alternative B
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Cost
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$116,000
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$113,000
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Variable manufacturing costs per year
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22,700
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11,000
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Calculate the total change in net income if Alternative A is adopted.
Calculate the total change in net income if Alternative B is adopted.
Question 2 - Santana Rey has found that her line of computer desks and chairs has become very popular and she is finding it hard to keep up with demand. She knows that she cannot fill all of her orders for both items, so she decides she must determine the optimal sales mix given the resources she has available. Information about the desks and chairs follows.
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Desks
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Chairs
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Selling price per unit
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$1,153.00
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$363.75
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Variable costs per unit
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600.00
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210.00
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Contribution margin per unit
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$553.00
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$153.75
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Direct labor hours per unit
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4 hours
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3 hours
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Expected demand for next quarter
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171 desks
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46 chairs
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Santana has determined that she only has 777 direct labor hours available for the next quarter and wants to optimize her contribution margin given the limited number of direct labor hours available.
Required: Determine the optimal sales mix and the contribution margin the business will earn at that sales mix.