1. Cost to buy new machine: Alternative A has a cost of $115,000. This would be a cash outflow for Xinhong Company.
2. Cash received to trade in old machine: Since there is no mention of a trade-in option for Alternative A, we assume there is no cash received from trading in the old machine.
3. Reduction in variable manufacturing costs: The current machine has variable manufacturing costs of $36,000 per year. With Alternative A, the variable manufacturing costs are reduced to $19,000 per year. This reduction in costs would positively impact net income.
To calculate the total change in net income, we subtract the cost to buy the new machine and add the reduction in variable manufacturing costs:
Total change in net income = Cost to buy new machine - Reduction in variable manufacturing costs
Total change in net income = -$115,000 - (-$36,000 - $19,000)
Simplifying the equation:
Total change in net income = -$115,000 - (-$17,000)
Total change in net income = -$115,000 + $17,000
Total change in net income = -$98,000
Therefore, if Alternative A is adopted, Xinhong Company can expect a decrease in net income of $98,000.