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1.Brittany Furniture manufactures two products: Couches and Beds. The following data are available:

	Couches	Beds
Sales price	$500.00	$700.00
Variable costs	$350.00	$375.00

The company can manufacture two couches per machine hour and one bed per machine hour. The company's production capacity is 900 machine hours per month.

To maximize profits, what product and how many units should the company produce in a month?

A.1,800 couches

B.1,800 couches and 900 beds

C.900 beds

D.600 couches and 325 beds

2. Black Productions has three models: D, E, and F. The following information is available:

	Model D	Model E	Model F
Sales revenue	$65,000	$33,000	$24,000
Variable expenses	$32,000	$13,000	$14,000
Contribution margin	$33,000	$20,000	$10,000
Fixed expenses	$16,000	$16,000	$16,000
Operating income (loss)	$17,000	$4,000	$(6,000)

Black Productions is thinking of discontinuing model F because it is reporting an operating loss. All fixed costs are unavoidable. Black Productions discontinues model F and rents the space formerly used to produce product F for $15,000 per year, what effect will this have on operating income?

A.Increase $21,000

B.Decrease $21,000

C.Decrease $5,000

D.Increase $5,000

3.Sky High Seats manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but is currently produces and sells 75,000 seats per year. The following information relates to current production of seats:

Sale price per unit	$400
Variable costs per unit:
Manufacturing	$220
Marketing and administrative	$50
Total fixed costs:
Manufacturing	$750,000
Marketing and administrative	$200,000

If a special sales order is accepted for 2,500 seats at a price of $320 per unit, fixed costs increase by $5,000, and variable marketing and administrative costs for that order are $25 per unit, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)

A.Increase by $182,500

B.Decrease by $182,500

C.Increase by $187,500

D.Increase by $245,000

4. A joint production process at Sunny Brooks Dairy results in two products, cherry jelly and cherry jam. The following cost and activity data relate to these two products:

	Cherry jelly	Cherry jam
Joint costs allocated	$10,000	$12,000
Number of units produced from joint process	2,000	2,000
Selling price at split-

off point	$2.50	$1.75
Selling price after processing further	$5.00	$2.00
Cost of processing further	$2,200	$2,000

Cherry jelly can be sold as-is (at the split-off point) for $2.50 per unit, or it can be processed further into a specialty cherry smoothie and then sold for $5.00 per unit. If cherry jelly is processed further into the specialty cherry smoothie, what would be the overall effect on operating income?

A.$2,800 net decrease in operating income

B.$5,000 net increase in operating income

C.$2,800 net increase in operating income

D.$5,000 net decrease in operating income

5. Stanley's Candies is considering building a new plant in Europe. It predicts sales at the new plant to be 40,000 units at $4.00/unit. Below is a listing of estimated expenses.

Category	Total Annual Expenses	% of Annual Expense that are Fixed
Materials	$20,000	10%
Labor	$30,000	20%
Overhead	$50,000	40%
Marketing/Admin	$10,000	60%

A European firm was contracted to sell the product and will receive a commission of 10% of the sales price. No U.S. home office expenses will be allocated to the new facility.

The contribution margin ratio for Stanley's Candies is

A.157.50%.

B.57.50%.

C.52.50%.

D.42.50%.

6.Part P40 is a part used in the production of air conditioners at Jackson Corporation. The following costs and data relate to the production of Part P40:

Number of parts produced annually	22,000
Fixed costs	$40,000
Variable costs	$66,000
Total cost to produce	$106,000

Jackson Corporation can purchase the part from an outside supplier for $4.25 per unit. If they purchase from the outside supplier, 50% of the fixed costs would be avoided. If Jackson Corporation buys the part, what is the most Jackson Corporation can spend per unit so that operating income is equal to $97,000?

A.$1.93

B.$1.00

C.$3.50

D.$5.32

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