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Starling Co. is considering disposing of a machine with a book value of $23,900 and estimated remaining life of five years. The old machine can be sold for $5,200. A new high-speed machine can be purchased at a cost of $73,500. It will have a useful life of five years and no residual value. It is estimated that the annual variable manufacturing costs will be reduced from $23,400 to $20,700 if the new machine is purchased. The differential effect on income for the new machine for the entire five years is a(n)

a.increase of $71,240

b.increase of $54,800

c.decrease of $54,800

Mighty Safe Fire Alarm is currently buying 62,000 motherboards from MotherBoard, Inc. at a price of $64 per board. Mighty Safe is considering making its own motherboards. The costs to make the motherboards are as follows: direct materials, $32 per unit; direct labor, $12 per unit; and variable factory overhead, $17 per unit. Fixed costs for the plant would increase by $79,000. Which option should be selected and why?

a.buy, $107,260 more in profits

b.buy, $79,000 more in profits

c.make, $107,260 increase in profits

d.make, $186,000 increase in profits

Keating Co. is considering disposing of equipment with a cost of $67,000 and accumulated depreciation of $46,900. Keating Co. can sell the equipment through a broker for $35,000, less a 9% broker commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $47,000. Keating will incur repair, insurance, and property tax expenses estimated at $8,000 over the five-year period. At lease-end, the equipment is expected to have no residual value. The net differential income from the lease alternative is

a.$7,150

b.$5,005

c.$10,725

d.$8,580

d.decrease of $71,240