9) Custom Furniture manufactures a small table and a large table. The small table sells for $800, has variable costs of $520 per table, and takes eight direct labor hours to manufacture. The large table sells for $1,200, has variable costs of $720, and takes sixteen direct labor hours to manufacture. The small table has a lower contribution margin per unit, but a higher contribution margin per direct labor hour.
10) In making product mix decisions under constraining factors, a company should maximize sales of the product with the highest contribution margin per unit.
11) A company sells two products with information as follows:
|
A
|
B
|
Price per unit
|
$10.00
|
$16.00
|
Variable cost per unit
|
$8.00
|
$11.00
|
Products are made by machine. 4 units of Product A can be made with one machine hour and 2 units of Product B can be made with one machine hour. If there are no constraints on production or sales of either product, then the company should emphasize sales of Product B.
12) If a product line has a negative contribution margin, the product line should probably be dropped, assuming no other significant considerations.
13) In deciding whether to drop its electronics product line, a company's manager should consider all of the following EXCEPT:
A) the variable and fixed costs it could save by dropping the product line.
B) the revenues it would lose from dropping the product line.
C) how dropping the electronics product line would affect sales of its other products, like CDs.
D) the amount of unavoidable fixed costs.
14) Sports Hats, Etc. has two product lines-baseball helmets and football helmets. Income statement data for the most recent year follow:
|
Total
|
Baseball Helmets
|
Football Helmets
|
Sales revenue
|
$460,000
|
$310,000
|
$150,000
|
Variable expenses
|
355,000
|
235,000
|
120,000
|
Contribution margin
|
105,000
|
75,000
|
30,000
|
Fixed expenses
|
76,000
|
38,000
|
38,000
|
Operating income (loss)
|
$29,000
|
$37,000
|
$(8,000)
|
Assuming fixed costs remain unchanged, and that there would be no adverse effect on other sales, how would dropping the Football Helmets line affect operating income?
A) Operating income will increase $8,000.
B) Operating income will increase $38,000.
C) Operating income will decrease $30,000.
D) Operating income will decrease $150,000.
15) Sports Hats, Etc. has two product lines-baseball helmets and football helmets. Income statement data for the most recent year follow:
|
Total
|
Baseball Helmets
|
Football Helmets
|
Sales revenue
|
$460,000
|
$310,000
|
$150,000
|
Variable expenses
|
355,000
|
235,000
|
120,000
|
Contribution margin
|
105,000
|
75,000
|
30,000
|
Fixed expenses
|
76,000
|
38,000
|
38,000
|
Operating income (loss)
|
$29,000
|
$37,000
|
$(8,000)
|
If $20,000 of fixed costs will be eliminated by dropping the Football Helmets line, how will operating income be affected?
A) Operating income will increase $12,000.
B) Operating income will increase $20,000.
C) Operating income will decrease $10,000.
D) Operating income will decrease $14,000.
16) Sports Hats, Etc. has two product lines-baseball helmets and football helmets. Income statement data for the most recent year follow:
|
Total
|
Baseball Helmets
|
Football Helmets
|
Sales revenue
|
$460,000
|
$310,000
|
$150,000
|
Variable expenses
|
355,000
|
235,000
|
120,000
|
Contribution margin
|
105,000
|
75,000
|
30,000
|
Fixed expenses
|
76,000
|
38,000
|
38,000
|
Operating income (loss)
|
$29,000
|
$37,000
|
$(8,000)
|
Assuming the Football Helmets line is dropped, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for $45,000 per year, how will operating income be affected?
A) Operating income will increase $15,000.
B) Operating income will increase $37,000.
C) Operating income will decrease $7,000.
D) Operating income will decrease $37,000.
17) Sports Hats, Etc. has two product lines-baseball helmets and football helmets. Income statement data for the most recent year follow:
|
Total
|
Baseball Helmets
|
Football Helmets
|
Sales revenue
|
$460,000
|
$310,000
|
$150,000
|
Variable expenses
|
355,000
|
235,000
|
120,000
|
Contribution margin
|
105,000
|
75,000
|
30,000
|
Fixed expenses
|
76,000
|
38,000
|
38,000
|
Operating income (loss)
|
$29,000
|
$37,000
|
$(8,000)
|
Assuming the Football Helmet line is dropped, total fixed costs remain unchanged, and the space formerly used to produce the Football Helmet line is used to double the production of Baseball Helmets, how will operating income be affected?
A) Operating income will increase $37,000.
B) Operating income will increase $45,000.
C) Operating income will decrease $37,000.
D) Operating income will decrease $45,000.
18) A company has two different products that sell to separate markets. Financial data are as follows:
|
Product A
|
Product B
|
Total
|
Revenue
|
$12,000
|
$8,000
|
$20,000
|
Variable cost
|
($7,500)
|
($8,100)
|
($15,600)
|
Fixed cost (allocated)
|
($3,000)
|
($1,000)
|
($4,000)
|
Operating income
|
$1,500
|
($1,100)
|
$400
|
Assume that fixed costs are all unavoidable and that dropping one product would not impact sales of the other. If Product B is dropped, what would the impact be on total operating income?
A) Increase $1,100
B) Increase $100
C) Decrease $1,100
D) Decrease $100