A.)

Lampshire Inc. is considering using stocks of an old raw material in a special project. The special project would require all 170 kilograms of the raw material that are in stock and that originally cost the company $1,436 in total. If the company were to buy new supplies of this raw material on the open market, it would cost $7.40 per kilogram. However, the company has no other use for this raw material and would sell it at the discounted price of $6.70 per kilogram if it were not used in the special project. The sale of the raw material would involve delivery to the purchaser at a total cost of $78 for all 170 kilograms. What is the relevant cost of the 170 kilograms of the raw material when deciding whether to proceed with the special project?

$1,139

$1,061

$1,248

$1,258

B.)

Part A42 is used by Elgin Corporation to make one of its products. A total of 24,000 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity:

	Per Unit
Direct materials	$9.10
Direct labor	$10.50
Variable manufacturing overhead	$7.10
Supervisor's salary	$7.20
Depreciation of special equipment	$9.60
Allocated general overhead	$6.90

An outside supplier has offered to make the part and sell it to the company for $36.80 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including the 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, none of which would be avoided if the part were purchased instead of produced internally. In addition, the space used to make part A42 could be used to make more of one of the company's other products, generating an additional segment margin of $31,000 per year for that product. What would be the impact on the company's overall net operating income of buying part A42 from the outside supplier?

Net operating income would decrease by $38,600 per year.

Net operating income would decrease by $257,000 per year.

Net operating income would increase by $31,000 per year.

Net operating income would decrease by $316,800 per year.

C.)

Iwasaki Inc. is considering whether to continue to make a component or to buy it from an outside supplier. The company uses 12,500 of the components each year. The unit product cost of the component according to the company's absorption cost accounting system is given as follows:

Direct materials	$ 8.30
Direct labor	5.30
Variable manufacturing overhead	1.10
Fixed manufacturing overhead	3.10
Unit product cost	$17.80

Assume that direct labor is a variable cost. Of the fixed manufacturing overhead, 40% is avoidable if the component were bought from the outside supplier, the remainder is not avoidable. In addition, making the component uses 2 minutes on the machine that is the company's current constraint. If the component were bought, time would be freed up for use on another product that requires 4 minutes on this machine and that has a contribution margin of $4.70 per unit.

When deciding whether to make or buy the component, what cost of making the component should be compared to the price of buying the component? (Round your intermediate calculations and final answer to 2 decimal places.)

$20.15

$19.05

$15.94

$18.29