Upstate Mechanical, Inc. has been producing two bearings, components T79 and B81, for use in production. Data regarding these two components follow.

	T79	B81
Machine Hours required per unit	2.50	3.00
Standard cost per unit
Direct material	$1.95	$3.45
Direct Labor	3.40	3.90
Manufacturing Overhead
Variable*	1.70	1.95
Fixed	3.15	3.90
Total	10.20	13.20

Variable manufacturing overhead is applied on the basis of direct labor hours. Fixed manufacturing overhead is applied on the basis of machine. Upstate Mechanicals annual requirement for these components is 7,400 units of T79 and 10,400 units of B81. Recently, management decided to devote additional machine time to other product lines, leaving only 41,300 machine hours per year for producing the bearings. An outside company has offered to sell Upstate Mechanical its annual supply of bearings at prices of $9.30 for T79 and $11.40 for B81. Management wants to schedule the otherwise idle 41,300 machine hours to produce bearings so that the firm can minimize costs (maximize net benefits). Questions.

1) Compute the net benefit (loss) per machine hour that would result if Upstate Mechanical accepts the suppliers offer of $11.40 per unit for component B81. Net profit or Net benefit =$______

2) Choose the correct answer. Upstate Mechanical will maximize its net benefits by: purchasing and manufacturing some amounts other than those given above. purchasing 7,400 units of T79 and manufacturing 10,400 units of B81. purchasing 2,800 units of T79 and manufacturing the remaining bearings. purchasing 2,800 units of B81 and manufacturing the remaining bearings. purchasing 10,400 units of B81 and manufacturing 7,400 units of T79.

3) Suppose management has decided to drop product T79. Independently of parts (1) and (2), assume that the companys idle capacity of 41,300 machine hours has a traceable, avoidable annual fixed cost of $35,360, which will be incurred only if the capacity is used. Calculate the maximum price Upstate Mechanical should pay a supplier for component B81.