Problem 1 - Assume that a company makes 30,000 units of Part A each year. At this level of production, the companys accounting system reports the following cost per unit:

Direct materials	$ 16
Direct labor	10
Variable manufacturing overhead	4
Fixed manufacturing overhead	8
Total cost per unit	$ 38

An outside supplier has offered to sell the company 30,000 parts per year for a price of $33 per part. The company believes that $155,000 of the fixed manufacturing overhead cost being allocated to this part will continue to be incurred even if the part is purchased from the outside supplier. What is the financial advantage (disadvantage) of buying the parts from the outside supplier?

Problem 2 - Assume a company manufactures many products, one of which normally sells for $48 per unit. The companys accounting system reports the following unit product cost for this product:

	Per Unit
Direct materials	$ 18
Direct labor	12
Manufacturing overhead	10
Total cost	$ 40

The company estimates that $3 of its manufacturing overhead varies with respect to the number of units produced. The remainder of its overhead is fixed and unaffected by the volume of units produced within the relevant range. A customer has approached the company with an offer to buy 300 units of a customized version of the product mentioned above for $39. The company can fulfill this order using existing manufacturing capacity. To accommodate the customers desired product design, the company would incur additional direct materials cost per unit of $3. It would also have to buy a special tool for $510 that has no other use or resale value after the special order is completed. Assuming that accepting this order will not have any effect on sales to other customers, what is the financial advantage (disadvantage) of accepting the special order?

Problem 1 - Assume that a company makes 30,000 units of Part A each year. At this level of production, the companys accounting system reports the following cost per unit:

Direct materials	$ 16
Direct labor	10
Variable manufacturing overhead	4
Fixed manufacturing overhead	8
Total cost per unit	$ 38

An outside supplier has offered to sell the company 30,000 parts per year for a price of $33 per part. The company believes that $155,000 of the fixed manufacturing overhead cost being allocated to this part will continue to be incurred even if the part is purchased from the outside supplier. What is the financial advantage (disadvantage) of buying the parts from the outside supplier?

Problem 2 - Assume a company manufactures many products, one of which normally sells for $48 per unit. The companys accounting system reports the following unit product cost for this product:

	Per Unit
Direct materials	$ 18
Direct labor	12
Manufacturing overhead	10
Total cost	$ 40

The company estimates that $3 of its manufacturing overhead varies with respect to the number of units produced. The remainder of its overhead is fixed and unaffected by the volume of units produced within the relevant range. A customer has approached the company with an offer to buy 300 units of a customized version of the product mentioned above for $39. The company can fulfill this order using existing manufacturing capacity. To accommodate the customers desired product design, the company would incur additional direct materials cost per unit of $3. It would also have to buy a special tool for $510 that has no other use or resale value after the special order is completed. Assuming that accepting this order will not have any effect on sales to other customers, what is the financial advantage (disadvantage) of accepting the special order?

Problem 3 - Assume a company makes only three products, A, B, and C:

	Product A	Product B	Product C
Selling price per unit	$ 80	$ 65	$ 54
Variable cost per unit	$ 35	$ 26	$ 20
Machine-hours per unit	2.5	3.0	1.25

The company has only 3,400 machine-hours available and unlimited demand for each of its three products. What is the highest total contribution margin that the company can earn if it makes optimal use of its constrained resource?