Question

Ingram Industries is considering two alternative new machines. Machine 1 would generate revenue of $70,000, have variable costs of $42,000, and have fixed costs of $14,000. Machine 2 would generate revenue of $84,000, have variable costs of $42,000, and have fixed costs of $22,400. What is the incremental net income between the two machine options

Answer 1

5,600 favorable for machine 2

Step-by-step explanation:

`\begin{array}{cccc}&Machine 1&Machine 2&Incremental\\$Sales&70000&84000&14,000\\$Variable Cost&-42000&-42000&0\\$Contribution&28000&42000&14000\\$Fixed Cost&-14000&-22400&-8400\\Operating Income&14000&17600&5600\\\end{array}\right]`

We solve for the diffence in each concept and then get the differnce in the Operating Income which is favorable to Machine 2 by the maginitude of 5,600 dollars

Answer 2

The incremental net income between the two machine options is $5600 as shown below.

Step-by-step explanation:

The profit derivable from machine one is computed thus:

Revenue $70,000

variable costs ($42000)

fixed costs ($14,000)

net profit $14000

Net profit from machine can be computed thus:

Revenue $84,000

variable costs ($42000)

fixed costs ($22,400)

net profit $19,600

Machine B brings in higher net profit,however the incremental net income from the two machine options is the difference between their net incomes,which is can be calculated thus:

Machine A net income ($14000)

Machine B net income $19600

Incremental net income $5600