1. Part O43 is used in one of Scheetz Corporation's products. The company's Accounting Department reports the following costs of producing the 15,500 units of the part that are needed every year.

	Per Unit
Direct materials	$2.40
Direct labor	$3.40
Variable overhead	$6.20
Supervisor's salary	$6.70
Depreciation of special equipment	$7.80
Allocated general overhead	$4.90

An outside supplier has offered to make the part and sell it to the company for $26.00 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $21,500 of these allocated general overhead costs would be avoided.

Required:
a.	Prepare a report that shows the effect on the company's total net operating income of buying part O43 from the supplier rather than continuing to make it inside the company. (Input the amount as a positive value. Omit the "$" sign in your response.)

Net operating income would be (Click to select)increasedecrease by $ .

b.

Which alternative should the company choose?

Make

2. Brown Corporation makes four products in a single facility. These products have the following unit product costs:

	Products
	A	B	C	D
Direct materials	$16.10	$20.00	$13.00	$15.70
Direct labor	18.10	21.50	15.90	9.90
Variable manufacturing overhead	4.90	6.10	8.60	5.60
Fixed manufacturing overhead	28.00	14.90	15.00	17.00
Unit product cost	$67.10	$62.50	$52.50	$48.20

Additional data concerning these products are listed below.

	Products
	A	B	C	D
Grinding minutes per unit	2.25	1.35	0.95	0.55
Selling price per unit	$81.20	$73.60	$70.40	$65.10
Variable selling cost per unit	$3.10	$3.60	$3.30	$4.00
Monthly demand in units	3,500	2,500	2,500	4,500.00

The grinding machines are potentially the constraint in the production facility. A total of 10,500 minutes are available per month on these machines. Direct labor is a variable cost in this company.

Which product makes the MOST profitable use of the grinding machines?

Product B

Product A

Product C

Product D

3. Hurren Corporation makes a product with the following standard costs:

	Standard Quantity or Hours	Standard Price or Rate	Standard Cost Per Unit
Direct materials	3.3 grams	$3.00 per gram	$9.90
Direct labor	0.7 hours	$12.00 per hour	$8.40
Variable overhead	0.7 hours	$9.00 per hour	$6.30

The company reported the following results concerning this product in June.

Originally budgeted output	8,600	units
Actual output	8,500	units
Raw materials used in production	27,000	grams
Actual direct labor-hours	5,300	hours
Purchases of raw materials	30,700	grams
Actual price of raw materials purchased	$3.10	per gram
Actual direct labor rate	$12.90	per hour
Actual variable overhead rate	$8.70	per hour

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.

The variable overhead efficiency variance for June is:

$5,655 F

$5,850 U

$5,655 U

$5,850 F