Layne Cedar manufactures cedar chests. The estimated number of chests for the first three months of 20x7 are as follows:

Month Sales
----- -----
January 10,000
February 14,000
March 13,000

Finished goods inventory at the end of December is 4,000 units. Ending finished goods are equal to 40 percent of next month's sales. April 20x7 sales are expected to total 16,000 units.

3. What will be the number of chests produced in January 20x7?
a. 15,600 chests
b. 14,000 chests
c. 11,600 chests
d. 8,400 chests
e. none of the above

Aspen Inc., manufactures 10,000 computer chips. Currently, the costs per unit are as follows:
Direct materials $ 1.00
Direct labor 10.00
Variable overhead 5.00
Fixed overhead 8.00
Total $24.00
Link, Corp., has contacted Aspen with an offer to sell 10,000 of the chips for $22.00 per chip. If Aspen accepts the proposal, $30,000 of fixed overhead will be eliminated.

4. Should Aspen make or buy the chips? What is the difference between the two alternatives?
a. Buy; savings = $20,000.
b. Buy; savings = $50,000.
c. Make; savings = $30,000.
d. Make; savings = $10,000.
e. none of the above

Cross, Inc., collected the following information:
Cost to buy one unit: $24
Production costs per unit:
Direct materials $ 11
Direct labor 8
Variable overhead 1
Total fixed overhead 180,000

5. If $50,000 of fixed costs can be eliminated, what production level is required for Cross to be indifferent between making or buying the part?
a. 32,500 units.
b. 26,500 units.
c. 12,500 units.
d. 0 units.
e. None of the above