1.) Paxton Company can produce a component of its product that incurs the following costs per unit: direct materials, $10.50; direct labor, $14.50, variable overhead $3.50 and fixed overhead, $8.50. An outside supplier has offered to sell the product to Paxton for $37.00. Compute the net incremental cost or savings of buying the component.

$3.50 cost per unit.

$8.50 savings per unit.

$0 cost or savings per unit.

$8.50 cost per unit.

$3.50 savings per unit.

2.)

Soar Incorporated is considering eliminating its mountain bike division, which reported an operating loss for the recent year of $3,200. The division sales for the year were $1,052,000 and the variable costs were $862,000. The fixed costs of the division were $195,000. If the mountain bike division is dropped, 30% of the fixed costs allocated to that division could be eliminated. The impact on operating income for eliminating this business segment would be:

$58,500 decrease

$131,500 decrease

$55,300 decrease

$190,000 increase

$190,000 decrease

3.)

Ahngram Corp. has 1,000 defective units of a product that cost $2.80 per unit in direct costs and $6.30 per unit in indirect cost when produced last year. The units can be sold as scrap for $3.80 per unit or reworked at an additional cost of $2.30 and sold at full price of $11.40. The incremental net income (loss) from the choice of reworking the units would be:

$5,300.

$0.

($2,300).

$9,100.

$2,300.

4.)

The following present value factors are provided for use in this problem.

Periods	Present Value of $1 at 8%	Present Value of anAnnuity of $1 at 8%
1	0.9259	0.9259
2	0.8573	1.7833
3	0.7938	2.5771
4	0.7350	3.3121

Xavier Co. wants to purchase a machine for $37,200 with a four year life and a $1,200 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $12,200 in each of the four years. What is the machine's net present value (round to the nearest whole dollar)?

$4,090.

$3,208.

$41,290.

$(4,090).

$(3,208).

5.)

Markson Company had the following results of operations for the past year:

Sales (8,000 units at $20.10)		$160,800
Variable manufacturing costs	$86,400
Fixed manufacturing costs	15,100
Variable selling and administrative expenses	12,400
Fixed selling and administrative expenses	20,100	(134,000)
Operating income		$26,800

A foreign company whose sales will not affect Markson's market offers to buy 2,000 units at $14.15 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $1,610 for the purchase of special tools. If Markson accepts this additional business, its profits will:

Decrease by $1,610.

Increase by $1,990.

Decrease by $5,210.

Increase by $3,600.

Decrease by $5,200.