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 57.00 Direct Labour 9.00 Variable mfe overhead 4.00 Fixed gofe 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 Old Equipment: New Equipment: Book Value $300 000 Cost $400 000 Disposal Value (now) $ 56 000 --5 Remaining useful life 10 yr. 10 yr. Disposal Value at end 0 $84,000 Annual Estim. Sales $480 000 $500 0005 Annual Operating cost $300 000 $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.0#3 Use for (1) and (2) Murphy Company sells Product X for $20 per unit. Variable costs to make are $10 per unit and to sell the product are $2 per unit. Fixed costs are $5 per unit at a normal volume of 400,000 units per year. Sales volume recently has been equal to normal volume and is expected to continue at that level. Current net income: $1,200,000 Evaluate the profitability of the two different alternative courses of action open to management. Compare each with the present situation. Show change in net income of each one. Option 1: (1) Murphy can increase the quality of the product by spending $1 more on the material in each unit. This will require a new piece of equipment that costs $200,000 and will last one year and be discarded with no salvage value. Murphy expects sales in units would increase 20%. Compute change in net income. Option 2: (2) Murphy can spend $1,000,000 more on advertising and raise their price by $2 per unit. They expect to sell 50,000 more units. Compute change in net income