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

Answer:

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

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

Answer 2

Answer:

5,600 favorable for machine 2

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