1. CM Manufacturing has provided the following unit costs pertaining to a component they manufacture and use in the production of one of their main products:

Direct materials	$315
Direct labor (variable)	96
Variable manufacturing overhead	72
Fixed manufacturing overhead	29

A supplier has offered to provide the component to CM manufacturing for $500 per unit. CM Manufacturing currently has no plans to use idle space that would be created if accepting offer from supplier. Assuming that CM Manufacturing needs 2,000 components annually and the fixed manufacturing overhead is unavoidable, what would be the impact on operating income if the company outsources? **Show your work to support your answer.

2. A chemical company spent $480,000 to produce 144,000 gallons of a chemical, which can be sold for $4.32 per gallon. The chemical can be further processed into a weed killer which can be sold for $6.40 per gallon; it will cost $256,320 to process the chemical into a weed killer. Should the company sell or process further? **Show your work to support your answer.