9. Assume that Darrow Co. is considering disposing of equipment that cost $50,000 and has $40,000 of accumulated depreciation to date. Darrow Co. can sell the equipment through a broker for $25,000 less 5% commission. Alternatively, Minton Co. has offered to lease the equipment for five years for a total of $48,750. Darrow will incur repair, insurance, and property tax expenses estimated at $10,000. At lease-end, the equipment is expected to have no residual value. The net differential income from the lease alternative is: $15,000 b. 5,000 $25,000 d. $12,500 a. C. | 10. Frank Co. is currently operating at 80% of capacity and is currently purchasing a part used in its manufacturing operations for $5 a unit. The unit cost for Frank Co. to make the part is $6, which includes $.40 of fixed costs. If 4,000 units of the part are normally purchased each year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease for making the part rather than purchasing it? $12,000 cost decrease b. $20,000 cost increase $20,000 cost decrease d. $2,400 cost increase a. c. | 11. Benson Co. is considering disposing of a machine with a book value of $12,500 and estimated remaining life of five years. The old machine can be sold for $1,500. A new high speed machine can be purchased at a cost of $25,000. It will have a useful life of five years and no residual value. It is estimated that variable manufacturing costs will be reduced from $26,000 to $23,500 if the new machine is purchased. The total net differential increase or decrease in cost for the new equipment for the entire five years is decrease of $11,000 b. decrease of $15,000 increase of $11,000 d. increase of $15,000 a c. 12. Sorrentino Inc. is considering disposing of a machine with a book value of s22,500 and an estimated remaining life of three years. The old machine can be sold for $6,250. A new machine with a purchase price of $68,750 is being considered as a replacement. It will have a useful life of three years and no residual value. It is estimated that variable manufacturing costs will be reduced from $43,750 to $20,000 if the new machine is purchased. The net differential increase or decrease in cost for the entire three years for the new equipment is $8,750 increase $31,250 decrease $8,750 decrease $2,925 decrease a. b. c. d. Dary Co. Produces a single product. Its normal selling price is $28 per unit. The variable costs are $18 per unit. Fixed costs are $20,000 for a normal production run of 5,000 units per month. Dary received a request for a special order that would not interfere with normal sales. The order was for 1,500 units and a special price of $17.50 per unit. Dary Co. has the capacity to handle the special order and, for this order, a variable selling cost of $2 per unit would be eliminated | 13. If the order is accepted, what would be the impact on net income? adecrease of $750 b. decrease of $6,750 increase of $2,250 c. increase of $1,500 d. 14. Should the special order be accepted? Cannot determine from the data given a. Yes b. No c. There would be no difference in accepting or rejecting the special order d. 15. Java, Inc has bought a new server and is having to decide what to do with the old one. The cost of the old server was originally $60,000 and has been depreciated $45,000. The company has received two offers that it must consider. One offer was made to purchase the equipment outright for $18,500 less a 5% sales commission. The other offer was to lease the equipment for $7,000 for the next five years but the company will be required to provide maintenance and insurance totaling $3,000 per year. What offer should Java, Inc. accept? $2,425 in favor of leasing Reject both offers $11,500 in favor of selling d. $16,500 in favor of leasing a. b. c. 16. Security Fire Alarm is currently buying 50,000 motherboard from MotherBoard's Inc at a price of $65 per board. It was suggested at the last manager's meeting that the company should consider making its own boards. The costs to make the part are as follows: Direct Materials $32 per unit, Direct labor $10 per unit, Variable Factory Overhead $16.00, Fixed Costs for the plant would increase by $75,000. As the financial advisor, what would you recommend? Buy - $75,000 more in profits b. Make $275,000 increase in profits Buy-$275,000 more in profits d. Make $350,000 increase in profits a. c