1. Peter Takesha, the manager of testing services at a medical diagnostics firm, purchased a new lab testing machine last year for $30,000. This year a new machine, which is faster and more reliable than Peters current model, is on the market. In deciding whether to purchase the new machine, should Peter consider how much he paid for the old machine? Should he consider the value of the old machine in the used equipment market?

2. Parrish Plumbing provides plumbing services to residential customers from Monday through Friday. Ken Parrish, the owner, believes that it is important for his employees to have Saturday and Sunday off to spend with their families. However, he also recognizes that this policy has implications for profitability, and he is considering staying open on Saturday.

Ken estimates that if his company stays open on Saturday, it can generate $2,500 of daily revenue each day for 52 days per year. The incremental daily costs will be $700 for labor, $500 for parts, $100 for transportation, and $200 for office staff. These costs do not include a share of monthly rent or a share of depreciation related to office equipment.

Ken is determined not to have employees work on Sunday, but he would like to know the opportunity cost of not working on Saturday. Provide Ken with an estimate of the opportunity cost, and explain why you do not have to consider rent or depreciation of office equipment in your estimate.

3. During the month of August, Star Plastics had $70,000 of labor costs that were traced to specific jobs. The company also had $50,000 of indirect labor related to supervisory pay. (Hint: There should be separate journal entries for direct and indirect labor.)

Required: Prepare journal entries to record labor cost during August.

4. During the month of August, Star Plastics applied overhead to jobs using an overhead rate of $3 per dollar of direct labor. Direct labor in August was $100,000. Actual overhead in August was $260,000. Assume that actual overhead was composed of the following items.

Indirect materials	$40,000
Indirect Labor	$80,000
Utilities	$25,000
Depreciation	$60,000
Repair	$55,000
Total	$260,000

Required:

a. Prepare a journal entry to record overhead applied to jobs.

b. Prepare a journal entry to record actual overhead.