1. Davanit Computers makes 5,600 units of a circuit board, CB76 at a cost of $200 each. Variable cost per unit is $160 and fixed cost per unit is $40. Peach Electronics offers to supply 5,600 units of CB76 for $180. If Davanit buys from Peach it will be able to save $15 per unit in fixed costs but continue to incur the remaining $25 per unit. Should Davanit accept Peach's offer? Explain.

2. LF Manufacturing is deciding whether to keep or replace an old machine. It obtains the following information: (SEE DATA TABLE) LF Manufacturing uses straight-line depreciation. Ignore the time value of money and income taxes. Should

LF Manufacturing replace the old machine? Explain.

Data Table Old Machine New Machine Original cost $ 10,900 $ 8,200 Useful life 10 years 3 years Current age 7 years 0 years Remaining useful life 3 years 3 years Accumulated depreciation $ 7,630 Not acquired yet Book value $ 3,270 Not acquired yet Current disposal value (in cash) $ 2,700 Not acquired yet 0 Terminal disposal value (3 years from now) $ $ 0 Annual cash operating costs $ 17,500 $ 14,500