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1. (TCO 8) Wood Co. has considerable excess manufacturing capacity. A special order's preliminary cost sheet includes the following applied manufacturing overhead costs: Allocated Fixed costs: 25,000 Variable costs: 36,000 The fixed costs include a normal $4,500 allocation for in-house design costs, although no in-house design will be done. Instead, the job will require the use of external designers costing $9,250. What is the correct total cost to be used in setting a selling price for the order?

2. (TCO 7) North Company produces a small part that it uses in the production of its Product H. The company's unit product cost for the part, based on a production of 100,000 parts per year, is as follows: .................................................Per part ....................Total Direct Materials............................ $7.00...........$700,000 Direct Labor ..................................6.00............$600,000 Variable Manufacturing Overhead 2.00...........$200,000 Plus: Fixed manufacturing Overhead, (Traceable or avoidable) :$400,000 Total. Fixed manufacturing Overhead,( Common---not traceable to any product. Will stay even if no product is manufactured) allocated on basis of labor-hours: additional $500,000 Total An outside supplier has offered to supply parts to the North Company for only $21.25 per part. 100 percent of the traceable or avoidable fixed manufacturing cost is supervisor salaries and other costs that can be ELIMINATED if the parts are purchased. The decision to buy the parts from the outside supplier would have no effect on the common fixed costs of the company. How much would profits increase or decrease as a result of purchasing the parts from the outside supplier rather than making them inside the company? (Points : 25)

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