Question
Mighty Safe Fire Alarm is currently buying 58,000 motherboards from MotherBoard, Inc. at a price of $68 per board. Mighty Safe is considering making its
Mighty Safe Fire Alarm is currently buying 58,000 motherboards from MotherBoard, Inc. at a price of $68 per board. Mighty Safe is considering making its own motherboards. The costs to make the motherboards are as follows: direct materials, $30 per unit; direct labor, $9 per unit; and variable factory overhead, $16 per unit. Fixed costs for the plant would increase by $90,000. Which option should be selected and why?
a. buy, $90,000 more in profits
b. buy, $664,100 more in profits
c. make, $664,100 increase in profits
d. make, $754,000 increase in profits
Keating Co. is considering disposing of equipment with a cost of $52,000 and accumulated depreciation of $36,400. Keating Co. can sell the equipment through a broker for $26,000, less a 10% broker commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $48,000. Keating will incur repair, insurance, and property tax expenses estimated at $10,000 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. $17,520
b. $10,220
c. $21,900
d. $14,600
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