Starling Co. is considering disposing of a machine with a book value of $22,700 and estimated remaining life of five years. The old machine can be sold for $5,400. A new high-speed machine can be purchased at a cost of $71,400. It will have a useful life of five years and no residual value. It is estimated that the annual variable manufacturing costs will be reduced from $23,400 to $20,400 if the new machine is purchased. The differential effect on income for the new machine for the entire five years is a(n)

a.increase of $66,300

b.decrease of $66,300

c.increase of $51,000

d.decrease of $51,000

Mighty Safe Fire Alarm is currently buying 56,000 motherboards from MotherBoard, Inc. at a price of $63 per board. Mighty Safe is considering making its own motherboards. The costs to make the motherboards are as follows: direct materials, $33 per unit; direct labor, $12 per unit; and variable factory overhead, $14 per unit. Fixed costs for the plant would increase by $70,000. Which option should be selected and why?

a.make, $154,000 increase in profits

b.buy, $154,000 more in profits

c.make, $224,000 increase in profits

d.buy, $70,000 more in profits

Keating Co. is considering disposing of equipment with a cost of $53,000 and accumulated depreciation of $37,100. Keating Co. can sell the equipment through a broker for $25,000, less a 10% broker commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $49,000. 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.$24,750

b.$16,500

c.$19,800

d.$11,550

Carmen Co. can further process Product J to produce Product D. Product J is currently selling for $20.00 per pound and costs $15.15 per pound to produce. Product D would sell for $35.90 per pound and would require an additional cost of $9.35 per pound to produce.

What is the differential cost of producing Product D?

a.$9.35 per pound

b.$11.22 per pound

c.$5.61 per pound

d.$7.48 per pound