Barrus is a profitable company that makes 30,000 motors annually that are used in the production of their power lawn mowers. The cost per motor at this level of activity is as follows:

Direct materials	$9.50
Direct labor		$8.60
Variable manufacturing overhead		$3.75

This motor has recently become available from an outside supplier for $25 per motor. If Barrus decides not to make the motors, the motor production facilities can be leased out for $100,000 per year and 50% of the $120,000 of the fixed manufacturing overhead costs will be avoidable. All variable manufacturing overhead is avoidable in the event Barrus terminates motor production. How much higher or lower will net income be if Barrus decides to continue making the motor rather than purchasing the motor from the outside supplier assuming a volume of production and sales of 30,000 units?

$ 5,500 lower

$ 74,500 higher

$ 65,500 lower

$125,500 lower

None of the above

Hildes Dairy is considering adding a new product line to their already profitable business. Market research indicates that sales revenue for the new line would be $30,000 for 25,000 units. Variable costs for the new product would be $0.85 per unit; additional direct (avoidable) fixed costs would total $5,000; and indirect fixed costs allocated from unavoidable costs currently in place would total$6,250. If Hildes added the new line, its net income would

increase by $3,750.

increase by $8,750.

decrease by $2,500.

decrease by $3,250.

none of the above.