1) Frederick Co. is thinking about having one of its products manufactured by a subcontractor.

Currently, the cost of manufacturing 5,000 units follows:

Direct material	$62,000
Direct labor	47,000
Variable factory overhead	38,000
Factory overhead	52,000

If Frederick can buy 5,000 units from a subcontractor for $130,000, it should:

2) Ahngram Corp. has 1,000 defective units of a product that cost $3 per unit in direct costs and $6.50 per unit in indirect cost when produced last year. The units can be sold as scrap for $4 per unit or reworked at an additional cost of $2.50 and sold at full price of $12. The incremental net income (loss) from the choice of reworking the units would be: