Answer the following questions.

Required

1. Damico Computers makes 5,600 units of a circuit board , CB76, at a cost of $230 each. Variable cost per unit is $150 and fixed cost per unit is $80. HT Electronics offers to supply 5,600 units of CB76 for $200. If Damico buys from HT it will be able to save $30 per unit of fixed costs but continue to incur the remaining $50 per unit. Should Damico accept HT's offer? Explain.

2. Ws Manufacturing is deciding whether to keep or replace an old machine. It obtains the following information:

Data table

	Old Machine				New Machine
Original cost		$10,200				$9,000
Useful life		12	years			4	years
Current age		8	years			0	years
Remaining useful life		4	years			4	years
Accumulated amortization		$6,800			Not acquired yet
Book value		$3,400			Not acquired yet
Current disposal value (in cash)		$2,500			Not acquired yet
Terminal disposal value (4 years from now)		$0				$0
Annual cash operating costs		$19,000				$13,500

WS Manufacturing uses straight-line amortization. Ignore the time value of money and

taxes. Should WS replace the income of old machine? Explain.

Requirement 1.

Damico Computers makes 5,600 units of a circuit board, CB76, at a cost of $230 each. Variable cost per unit is $150 and fixed cost per unit is $80.

HT Electronics offers to supply 5,600 units of CB76 for $200. If Damico buys from HT it will be able to save $30 per unit of fixed costs but continue to incur the remaining $50 per unit. Should Damico accept HT's offer? Explain.

Begin by calculating the relevant cost per unit. (Only complete the necessary answer boxes.)

	Make	Buy
Relevant costs:
Unit relevant cost

Part 2

Damico

Computers should

accept

reject

HT's offer. When comparing relevant costs between the choices, HT's offer price is

higher

lower

than the cost to continue to produce.

Part 3

Requirement 2.

WS Manufacturing uses straight-line amortization. Ignore the time value of money and income taxes. Should WS replace the old machine? Explain.

Begin by calculating the total relevant costs. (Only complete the necessary answer boxes. Use parentheses or a minus sign for numbers to be subtracted.)

	Keep	Replace	Difference
Total relevant costs

Part 4

WS

Manufacturing should

keep

replace

the old machine. The cost savings are

greater

less

than the cost to purchase the new machine.