Question

Sunland Company produces three versions of baseball bats: wood, aluminum, and hard rubber. A condensed segmented income statement for a recent period follows:

	Wood		Aluminum		Hard Rubber		Total
Sales	$470000		$170000		$65000		$705000
Variable expenses	310000		110000		58000		478000
Contribution margin	160000		60000		7000		227000
Fixed expenses	75000		35000		22000		132000
Net income (loss)	$85000		$ 25000		$(15000)		$95000

Assume none of the fixed expenses for the hard rubber line are avoidable. What will be total net income if the line is dropped?

$88000

$110000

$110000

$120000

A company has three product lines, one of which reflects the following results:

Sales	$241000
Variable expenses	139000
Contribution margin	102000
Fixed expenses	130000
Net loss	$ (28000)

If this product line is eliminated, 60% of the fixed expenses can be eliminated and the other 40% will be allocated to other product lines. If management decides to eliminate this product line, the company’s net income will

decrease by $24000.

increase by $24000.

increase by $28000.

decrease by $102000.

It costs Marigold Company $26 per unit ($18 variable and $8 fixed) to produce its product, which normally sells for $38 per unit. A foreign wholesaler offers to purchase 3400 units at $21 each. Marigold would incur special shipping costs of $2 per unit if the order were accepted. Marigold has sufficient unused capacity to produce the 3400 units. If the special order is accepted, what will be the effect on net income?

$10200 increase

$3400 decrease

$3400 increase

$61200 increase

Oriole Company manufactures a product with a unit variable cost of $100 and a unit sales price of $176. Fixed manufacturing costs were $480000 when 10000 units were produced and sold. The company has a one-time opportunity to sell an additional 1000 units at $130 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows:

Income would increase by $130000.

Income would increase by $30000.

Income would increase by $18000.

Income would decrease by $18000.

A company contemplating the acceptance of a special order has the following unit cost behavior, based on 10000 units:

Direct materials	$ 4
Direct labor	10
Variable overhead	8
Fixed overhead	6

A foreign company wants to purchase 3800 units at a special unit price of $25. The normal price per unit is $40. In addition, a special stamping machine will have to be purchased for $4000 in order to stamp the foreign company’s name on the product. The incremental income (loss) from accepting the order is

$7400.

$11400.

$(11400).

$(3800).

Marigold Corp. is considering the replacement of a piece of equipment with a newer model. The following data has been collected:

	Old Equipment		New Equipment
Purchase price	$265000		$432000
Accumulated depreciation	106000		- 0 -
Annual operating costs	348000		273000

If the old equipment is replaced now, it can be sold for $71500. Both the old equipment’s remaining useful life and the new equipment’s useful life is 5 years.

Which of the following amounts is irrelevant to the replacement decision?

$360500

$159000

$71500

$432000

Answer 1

Total Net Income (If Hard rubber line is dropped) = Net Income from (wood + Aluminium) - Fixed Expenses of Hard Rubber

= $ (85000 + 25000) - $ 22000

= $ 88000