6 freemen company 39 s western territory 39 s forecasted income statement for the up 4306834

6 freemen company 39 s western territory 39 s forecasted income statement for the up 4306834

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 their 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, they 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. 4 units of product A can be made with 2 machine hour and 2 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) how dropping the electronics product line would affect sales of its other products, like CDs.

D) the amount of unavoidable fixed costs.

14) Faros 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

$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)

Assuming fixed costs remain unchanged, and that there would be no adverse effect on other sales. What will be the effect of dropping Football Helmets line on the operating income of the company?

A) 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.

15) Faros 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

$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)

If $50,000 of fixed costs will be eliminated by dropping the Football Helmets line, how will dropping Football Helmets affect the operating income of the company?

A) Operating income will increase by $50,000.

B) Operating income will increase by $70,000.

C) Operating income will decrease by $90,000.

D

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