1. age Company manufactures two products Model A and Model B that sell for $120 and $80, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 100,000 units of each product. Its unit costs for each product at this level of activity are given below:

   	Model A	Model B
   Direct materials	30	12
   Direct labor	20	15
   Variable manufacturing overhead	7	5
   Traceable fixed manufacturing overhead	16	18
   Variable selling expenses	12	8
   Common fixed expenses	15	10
   Total cost per unit	100	68

   The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are deemed unavoidable and have been allocated to products based on sales dollars.

2. Assume that Gage expects to produce and sell 80,000 Model As during the current year. A supplier has offered to manufacture and deliver 80,000 Model As to Gage for a price of $80 per unit. If Gage buys 80,000 units from the supplier instead of making those units, how much will profits increase or decrease?

	Make		Buy	Net Income Increase/ (Decrease)

1. Assume that Gage expects to produce and sell 50,000 Model As during the current year. A supplier has offered to manufacture and deliver 50,000 Model As to Gage for a price of $80 per unit. If Gage buys 50,000 units from the supplier instead of making those units, how much will profits increase or decrease?

			Make		Buy		Net Income Increase/ (Decrease)