1.

Gelb Company currently manufactures 52,500 units per year of a key component for its manufacturing process. Variable costs are $5.15 per unit, fixed costs related to making this component are $85,000 per year, and allocated fixed costs are $82,500 per year. The allocated fixed costs are unavoidable whether the company makes or buys this component. The company is considering buying this component from a supplier for $3.90 per unit. Calculate the total incremental cost of making and buying 52,500 units. Should it continue to manufacture the component, or should it buy this component from the outside supplier?

2.

A machine can be purchased for $180,000 and used for five years, yielding the following net incomes. In projecting net incomes, straight-line depreciation is applied, using a five-year life and a zero salvage value.

	Year 1				Year 2				Year 3				Year 4				Year 5
Net income		$	12,100			$	30,100			$	69,000			$	45,300			$	120,400

3. Varto Company has 11,800 units of its sole product in inventory that it produced last year at a cost of $25 each. This years model is superior to last years, and the 11,800 units cannot be sold at last years regular selling price of $52 each. Varto has two alternatives for these items: (1) they can be sold to a wholesaler for $10 each, or (2) they can be reworked at a cost of $266,400 and then sold for $32 each. Prepare analysis to determine whether Varto should sell the products as is or rework them and then sell them.

4.

Cobe Company has already manufactured 20,000 units of Product A at a cost of $20 per unit. The 20,000 units can be sold at this stage for $420,000. Alternatively, the units can be further processed at a $230,000 total additional cost and be converted into 5,800 units of Product B and 11,300 units of Product C. Per unit selling price for Product B is $102 and for Product, C is $53. Prepare an analysis that shows whether the 20,000 units of Product A should be processed further or not.