29) Which of the following statements describes a scenario when management should consider dropping a business division?
A) The division has consistently reported an operating loss.
B) The division's avoidable fixed costs are less than its contribution margin.
C) The division's avoidable fixed costs are greater than its contribution margin.
D) The division's unavoidable fixed costs are greater than its operating loss.
30) Clay Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp. The following per unit data are available:
|
Bedford Lamp
|
Lowell Lamp
|
Sale price
|
$25
|
$35
|
Variable costs
|
$17
|
$23
|
Machine hours required for 1 lamp
|
2
|
4
|
Total fixed costs are $30,000, and Clay can sell a maximum of 10,000 units of each style of lamp annually. Machine hour capacity is 25,000 hours per year. What is the contribution margin per unit for the Bedford lamp?
A) $4 per machine hour
B) $2 per machine hour
C) $6 per machine hour
D) $8 per machine hour
31) Clay Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp. The following per unit data are available:
|
Bedford Lamp
|
Lowell Lamp
|
Sale price
|
$25
|
$35
|
Variable costs
|
$17
|
$23
|
Machine hours required for 1 lamp
|
2
|
4
|
Total fixed costs are $30,000, and Clay can sell a maximum of 10,000 units of each style of lamp annually. Machine hour capacity is 25,000 hours per year. What is the contribution margin per unit for the Lowell lamp?
A) $4 per machine hour
B) $2 per machine hour
C) $3 per machine hour
D) $12 per machine hour
32) Clay Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp. The following per unit data are available:
|
Bedford Lamp
|
Lowell Lamp
|
Sale price
|
$25
|
$35
|
Variable costs
|
$17
|
$23
|
Machine hours required for 1 lamp
|
2
|
4
|
Total fixed costs are $30,000. Machine hour capacity is 25,000 hours per year. Assuming that the company can sell as many products as it can make, which product mix would deliver the highest operating income?
A) 10,00 Bedford lamps, 1,250 Lowell lamps
B) Zero Bedford lamps, 6,250 Lowell lamps
C) 12,500 Bedford lamps, zero Lowell lamps
D) 12,500 Bedford lamps, 12,500 Lowell lamps
33) Clay Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp. The following per unit data are available:
|
Bedford Lamp
|
Lowell Lamp
|
Sale price
|
$25
|
$35
|
Variable costs
|
$17
|
$23
|
Machine hours required for 1 lamp
|
2
|
4
|
Total fixed costs are $30,000. Marketing data indicate that the company can sell up to 8,000 units of the Bedford lamp and up to 4,000 units of the Lowell lamp. Machine hour capacity is 25,000 hours per year. What product mix will deliver the optimum operating income?
A) 4,500 Bedford lamps, 4,000 Lowell lamps
B) 12,500 Bedford lamps, zero Lowell lamps
C) 8,000 Bedford lamps, 2,250 Lowell lamps
D) 7,500 Bedford lamps, 3,000 Lowell lamps
34) Foster Corporation produces two products-P and Q. P sells for $4.00 per unit; Q sells for $5.25 per unit. Variable costs for P and Q are respectively, $2.50 and $3.09. There are 3,570 direct labor hours per month available for producing the two products. Product P requires 3 direct labor hours per unit and Product Q requires 4.5 direct labor hours per unit. The company can sell as many of either product as it can produce.
What is the maximum monthly contribution margin that Foster can generate under the circumstances? (Please round to nearest whole dollar.)
A) $1,785
B) $1,714
C) $1,650
D) $2,567
35) Foster Corporation produces two products-P and Q. P sells for $4.00 per unit; Q sells for $5.25 per unit. Variable costs for P and Q are respectively, $2.50 and $3.09. There are 3,570 direct labor hours per month available for producing the two products. Product P requires 3 direct labor hours per unit and Product Q requires 4.5 direct labor hours per unit. The company can sell up to 800 units of each kind per month.
What is the maximum monthly contribution margin that Foster can generate under the circumstances? (Please round to nearest whole dollar.)
A) $1,785
B) $1,714
C) $1,762
D) $2,567
36) RS Company's western territory's forecasted income statement for the upcoming year is as follows:
Sales
|
$750,000
|
Variable expenses
|
420,000
|
Contribution margin
|
$330,000
|
Fixed expenses
|
396,000
|
Operating income
|
($66,000)
|
RS Company's management is considering dropping the western territory and has determined that 90% of the fixed expenses are avoidable. What is the change in RS Company's forecasted operating income for the upcoming year if the western territory is dropped?
A) Up $26,400
B) Up $1,640
C) Down $330,000
D) Up $66,000
37) RS Company's western territory's forecasted income statement for the upcoming year is as follows:
Sales
|
$750,000
|
Variable expenses
|
420,000
|
Contribution margin
|
$330,000
|
Fixed expenses
|
396,000
|
Operating income
|
($66,000)
|
RS Company's management is considering dropping the western territory and has determined that $300,000 of the fixed expenses are avoidable. What is the change in RS Company's forecasted operating income for the upcoming year if the western territory is dropped?
A) Up $26,400
B) Up $30,000
C) Down $30,000
D) Down $6,000
38) DM Corporation has provided you with the following budgeted income statement for one of their products:
Sales
|
$650,000
|
Variable expenses
|
455,000
|
Contribution margin
|
$195,000
|
Fixed expenses
|
240,000
|
Operating income
|
($45,000)
|
DM has just encountered environmental problems with the product and will be forced to drop the product line altogether. They will be able to eliminate 75% of the fixed expenses. What will the impact on operating income be?
A) Down $45,000
B) Down $15,000
C) Up $8,500
D) Up $7,500