MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Lakers Company manufactures a part for its production cycle. The annual costs per unit for 1) 5,000 units of the part are as follows: Direct materials $3.00 Direct labor 5.00 Variable factory overhead 4.00 Fixed factory overhead _2_.__0 Total costs $14.99 The xed factory overhead costs are unavoidable. Spalding Company has offered to sell 5,000 units of the same part to Lakers Company for $14 per unit. The facilities currently used for the part could be used to make 5,000 units annually of a new product that would contribute $5 a unit to xed expenses. No additional xed costs would be incurred with the new product. Lakers Company should . A) make the new product and buy the part to save $1 per unit B) make the part to save $3 per unit C) make the new product and buy the part to save $3 per unit D) make the part to save $1 per unit 2) Clinton Company manufactures a part for its production cycle. The costs per unit for 10,000 2] units of the part are as follows: Direct materials $20.00 Direct labor 15.00 Variable factory overhead 16.00 Fixed factory overhead m Total costs m The xed factory overhead costs are unavoidable. Wilson Company has offered to sell 10,000 units of the same part to Clinton Company for $55 per unit. Assuming no other use for the facilities, Clinton Company should A) make the part to save $6 per unit B) make the part to save $4 per unit C) buy the part from Wilson Company to save $4 per unit D) buy the part from Wilson Company to save $6 per unit 3) Johnson Company manufactures a part for its production cycle. The annual costs per unit for 10,000 units of the part are as follows: Direct materials $20.00 Direct labor 15.00 Variable factory overhead 16.00 Fixed factory overhead M Total costs $1.00 The xed factory overhead costs are unavoidable. Spalding Company has offered to sell 10,000 units of the same part to Johnson Company for $60 per unit. The facilities currently used to make the part could be rented out to another manufacturer for $100,000 per year. Johnson Company should . A) buy the part to save $2.50 per unit B) make the part to save $2.50 per unit C) buy the part to save $1 per unit D) make the part to save $1 per unit 4) A manager is considering the following investment: Initial capital investment $180,000 Estimated useful life 3 years Estimated disposal value in 3 years 0 Estimated annual savings in cash operating costs $80,000 Minimum desired rate of return 10% Present value of ordinary annuity, 3 periods at 10% 2.4869 Present value of one, 3 periods at 10% 0.7513 Assume straight-line depreciation is used. Ignore income taxes. The net present value of the investment is . A) $18,952 B) $60,000 C) $198,952 D) $023,652) 5) A manager is considering the following investment: Estimated capital investment . $270,000 Estimated useful life 3 years Estimated disposal value in 3 years $10,000 Estimated annual savings in cash operating costs $150,000 Minimum desired rate of return 12% Present value of ordinary annuity, 3 periods at 12% 2.4018 Present value of one, 3 periods at 12% 0.7118 Assume straightline depreciation is used. Ignore income taxes. The net present value of the investment is . A) $50,310 B) $90,270 C) $57,428 D) $97,388