Q1. Make vs Buy King Company makes 80,000 units of Part R2-D2 each year. At this level of activity, the cost per unit for Part R2-D2 is: Direct Materials $7.00 Direct Labour 9.00 Variable mfg overhead 4.00 Fixed mfg overhead 10.00 Total Cost per Part $30.00 An outside supplier has offered to sell 80,000 units of Part R2-D2 each year to King for $25.00 per part. If King accepts the offer, the facilities currently used to make R2-D2 can be rented out to another company for $120,000 per year. King has calculated that $7 of the fixed manufacturing overhead being applied to R2-D2 would continue even if the part is purchased from the outside supplier. REQUIRED: How much will profit change if the outside offer is accepted. Q2. REPLACING EQUIPMENT Book Value Old Equipment: $300 000 New Equipment: Cost $400 000 Disposal Value (now) $56 000 Remaining useful life 10 yr. Disposal Value at end Annual Estim. Sales Annual Operating cost 0 $480 000 $300 000 10 yr. $84,000 $500 000 $290 000 (A) Show the incremental 10-year profit if the new equipment is purchased. (B) If the disposal value of the current (old) equipment in 10 years would be $45,000 instead of zero; show the incremental 10-year profit if the new equipment is purchased.