5 sand corporation manufactures two styles of lamps a bedford lamp and a lowell lamp 4307753

5 sand corporation manufactures two styles of lamps a bedford lamp and a lowell lamp 4307753

5) Sand 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

$30

$40

Variable costs

$18

$24

Machine hours required for 1 lamp

2

4

Total fixed costs are $40,000 and the machine hour capacity is 30,000 hours per year. The Lowell lamp has the highest contribution margin per unit, and also has the highest contribution margin per machine hour, so the company should focus sales on the Lowell lamp.

6) Freemen Company's western territory's forecasted income statement for the upcoming year is as follows:

Sales

$800,000

Variable expenses

500,000

Contribution margin

$300,000

Fixed expenses

396,000

Operating income

($96,000)

Freemen Company's management is considering dropping the western territory. This move would be financially advantageous only if the company could eliminate $96,000 of fixed costs or more.

7) Tyler Corporation has provided you with the following budgeted income statement for one of its products:

Sales

$750,000

Variable expenses

500,000

Contribution margin

$250,000

Fixed expenses

280,000

Operating income

($30,000)

Tyler Corporation believes that 80% of the fixed costs would be avoidable if the product line was dropped. Based on the impact of company's operating income, Tyler should not drop the product line.

8) Lit Furniture manufactures a small table and a large table. The small table sells for $900, has variable costs of $750 per table, and takes 7.5 labor hours to manufacture. The large table sells for $1,500, has variable costs of $900, and takes 15 direct labor hours to manufacture. If the company has no sales limitations on either product, it should make and sell as many of the large tables as possible to maximize operating income.

9) Lit Furniture manufactures a small table and a large table. The small table sells for $900, has variable costs of $750 per table, and takes 7.5 labor hours to manufacture. The large table sells for $1,500, has variable costs of $900, and takes 15 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

$12

$18

Variable cost per unit

$4

$12

Products are made by machine. Four units of product A can be made with 2 machine hour and two units of product B can be made with 0.50 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 there are no other significant considerations.

13) In deciding whether to drop its electronics product line, a company's manager should ignore ________.

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) the effect of dropping the electronics product line on the sales of its other products, like CDs

D) the amount of unavoidable fixed costs

14) Faros Hats Inc. has two product lines—baseball helmets and football helmets. The income statement data for the most recent year is as follows:

Total

Baseball Helmets

Football Helmets

Sales revenue

$850,000

$500,000

$350,000

Variable expenses

(530,000)

(250,000)

(280,000)

Contribution margin

$320,000

$250,000

$70,000

Fixed expenses

(180,000)

(90,000)

(90,000)

Operating income (loss)

$140,000

$160,000

$(20,000)

What will be the effect of dropping Football Helmets line on the operating income of the company? (Assume that fixed costs remain unchangedA) Operating income will increase by $20,000.

B) Operating income will increase by $90,000.

C) Operating income will decrease by $70,000.

D) Operating income will decrease by $350,000.

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