a. The income increase or decrease from replacing the old machine with Machine A is $58,000.
b. The income increase or decrease from replacing the old machine with Machine B is $75,000.
c. Lopez company should choose "Alternative B" Machine.
a. Alternative A
Increase or decrease in net income - Lopez Company
Cost to buy new machine -$116,000
Cash received to trade in old machine $59,000
Reduction in variable manufacturing cost $115,000
[($42,000- $19,000)×5]
Total change in net income $58,000
b. Alternative B
Increase or decrease in net income - Lopez Company
Cost to buy new machine -$129,000
Cash received to trade in old machine $59,000
Reduction in variable manufacturing cost $145,000
[($42,000- $13,000)×5]
Total change in net income $75,000
c. Lopez company should choose "Alternative B" Machine.
Inconclusion te income increase or decrease from replacing the old machine with Machine A is $58,000 and Machine B is $75,000.
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