1) Assume that a company manufactures numerous component parts, one of which is called Part A. The companys absorption costing system indicates that it costs $23.00 to make one unit of Part A as shown below:

Direct materials	$	10.00
Direct labor		6.00
Variable overhead		2.00
Fixed overhead		5.00
Total absorption cost per unit	$	23.00

The company is trying to decide between two alternatives: Alternative 1: Continue making 50,000 units of Part A annually using its existing equipment at the unit cost shown above. The equipment used to make this part does not wear out through use and it has no resale value. Alternative 2: Purchase 50,000 units of Part A from a supplier at a cost of $19.00 per unit. What is the financial advantage or (disadvantage) of buying the parts from a supplier?

2) Assume that a company makes three productsProduct A, Product B, and Product Cand provides the following information with respect to those products:

	Product A					Product B					Product C
Selling price		$	70				$	75				$	85
Variable costs per unit:
Direct materials			16					24					20
Direct labor			40					28					32
Variable overhead			2					2					3
Total variable cost per unit			58					54					55
Contribution margin per unit		$	12				$	21				$	30

The company incurs total fixed costs of $50,000. The maximum demand for each of its products is 600 units. Its direct material cost is $8.00 per pound. The company has only 3,000 pounds of direct materials available for production. Assuming the company has made optimal use of its 3,000 pounds off direct material, what is the maximum amount per pound the company should be willing to pay for additional direct materials?