Masse Corporation uses part G18 in one of its products. The company's Accounting Department reports the following costs of producing the 16,500 units of the part that are needed every year.

 	Per Unit
  Direct materials	$3.70
  Direct labor	$4.40
  Variable overhead	$7.40
  Supervisor's salary	$8.10
  Depreciation of special equipment	$8.70
  Allocated general overhead  	$5.70

An outside supplier has offered to make the part and sell it to the company for $30.00 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $22,500 of these allocated general overhead costs would be avoided. In addition, the space used to produce part G18 could be used to make more of one of the company's other products, generating an additional segment margin of $27,000 per year for that product.

Required:
a.
Calculate the effect on the company's total net operating income of buying part G18 from the supplier rather than continuing to make it inside the company. (Input the amount as a positive value. Omit the "$" sign in your response.)

  Net operating income would be decrease correct by $ 56,100 correct.

b.
Which alternative should the company choose?

 	Make correct

Delta Company produces a single product. The cost of producing and selling a single unit of this product at the company’s normal activity level of 96,000 units per year is:



  Direct materials	$	2.50
  Direct labor	$	3.00
  Variable manufacturing overhead	$	.80
  Fixed manufacturing overhead	$	4.95
  Variable selling and administrative expenses	$	1.70
  Fixed selling and administrative expenses	$	2.00



The normal selling price is $20 per unit. The company’s capacity is 114,000 units per year. An order has been received from a mail-order house for 1,500 units at a special price of $17.00 per unit. This order would not affect regular sales.


Required:
1.
If the order is accepted, by how much will annual profits be increased or decreased? (The order will not change the company’s total fixed costs.)

 Annual profits would	Increase	by	$13,500

2.
Assume the company has 500 units of this product left over from last year that are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units? (Round your answer to 2 decimal places.)

Relevant cost per unit	$1.70