1) Sun T. Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered:

Old Machine New Machine

Price $350,000 $685,000

Accumulated Depreciation 90,000 -0-

Remaining useful life 9 years -0-

Useful life -0- 9 years

Annual operating costs $225,000 $175,000

If the old machine is replaced, it can be sold for $32,000.

Should Sun T. keep the old machine or replace it? Why - what is the net savings associated with your choice vs. the alternative?

2) Construction Co. has collected the following data for the next year's budgeted activity:

Carpenter wages $200,000

Fringe benefits $22,500

Related overhead $17,500

Total estimated construction hours 4,500

Desired Profit margin per hour $22

Supply clerk's wages & benefits $22,000

Supply Related overhead $20,000

Profit margin on materials 15%

Total estimated material costs $168,000

Based on the above, carpenter hourly charges would be billed at what hourly rate?

3) Gamma Inc. incurs the following costs to produce 8,000 units of a subcomponent: Direct materials $9,300 Direct labor 12,000 Variable overhead 10,500 Fixed overhead 17,000 An outside supplier has offered to sell Gamma the subcomponent for $3.85 a unit. Assume Gamma could avoid $3,500 of fixed overhead by accepting the offer. Gamma should ________ (accept / reject) the offer because net income would increase / (decrease) by _______.

a) accept / $21,000 increase

b) reject / ($4,500) decrease

c) accept / $6,750 increase

d) accept / $4,500 increase