19 a company has two different products that sell to separate markets financial data 4352194

19) 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 of $500 could be eliminated if product B was dropped; assume furthermore 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 $600

C) Increase $500

D) Increase $100

20) Easy Cook Company manufactures two products: toaster ovens and bread machines.  The following data are available:

Toaster Ovens

Bread Machines

Sale price

$60

$135

Variable costs

$38

$62

Easy Cook can manufacture five toaster ovens per machine hour and three bread machines per machine hour. Easy Cook's production capacity is 1,500 machine hours per month. What is the contribution margin per machine hour for bread machines?

A) $73

B) $110

C) $219

D) $365

21) Easy Cook Company manufactures two products: toaster ovens and bread machines.  The following data are available:

Toaster Ovens

Bread Machines

Sale price

$60

$135

Variable costs

$38

$62

Easy Cook can manufacture five toaster ovens per machine hour and three bread machines per machine hour. Easy Cook's production capacity is 1,500 machine hours per month.  What is the contribution margin per machine hour for toaster ovens?

A) $110

B) $125

C) $219

D) $365

22) Easy Cook Company manufactures two products: toaster ovens and bread machines.  The following data are available:

Toaster Ovens

Bread Machines

Sale price

$60

$135

Variable costs

$38

$62

Easy Cook can manufacture five toaster ovens per machine hour and three bread machines per machine hour. Easy Cook's production capacity is 1,500 machine hours per month, and Easy Cook can sell as many units of either type as it can produce. To maximize profits, what product and how many units should the company produce in a month?

A) 4,500 bread machines

B) 2,250 toaster ovens and 3,750 bread machines

C) 3,750 toaster ovens and 2,250 bread machines

D) 7,500 toaster ovens

23) Easy Cook Company manufactures two products: toaster ovens and bread machines.  The following data are available:

Toaster Ovens

Bread Machines

Sale price

$60

$135

Variable costs

$38

$62

Easy Cook can manufacture five toaster ovens per machine hour and three bread machines per machine hour. Easy Cook's production capacity is 1,500 machine hours per month.  Marketing limitations indicate that Easy Cook can sell a maximum of 5,000 toasters a month, and 3,000 bread machines per month. To maximize profits, what product and how many units should the company produce in a month?

A) 4,500 bread machines

B) 2,500 toaster ovens and 3,000 bread machines

C) 3,750 toaster ovens and 2,250 bread machines

D) 7,500 toaster ovens

24) Shine Bright Company has three product lines-D, E, and F. The following information is available:

 

D

E

F

Sales

$60,000

$38,000

$26,000

Variable costs

  36,000

  18,000

  12,000

Contribution margin

24,000

  20,000

14,000

Fixed expenses

  12,000

  15,000

  16,000

Operating income (loss)

$12,000

$5,000

$(2,000)

Shine Bright Company is thinking of dropping product line F because it is reporting an operating loss.  Assuming fixed costs are unavoidable, if Shine Bright Company drops product line F and does not replace it, what effect will this have on operating income?

A) Operating income will increase $2,000.

B) Operating income will increase $14,000.

C) Operating income will increase $16,000.

D) Operating income will decrease $14,000.

25) Shine Bright Company has three product lines-D, E, and F. The following information is available:

 

 

D

E

F

Sales

$60,000

$38,000

$26,000

Variable costs

  36,000

  18,000

  12,000

Contribution margin

24,000

  20,000

14,000

Fixed expenses

  12,000

  15,000

  16,000

Operating income (loss)

$12,000

$5,000

$(2,000)

Shine Bright Company is thinking of dropping product line F because it is reporting an operating loss.  Assuming fixed costs are unavoidable, if Shine Bright Company drops product line F and rents the space formerly used to produce product F for $17,000 per year, what effect will this have on operating income?

A) Operating income will increase $3,000.

B) Operating income will increase $15,000.

C) Operating income will decrease $14,000.

D) Operating income will decrease $3,000.

26) Shine Bright Company has three product lines: D, E, and F. The following information is available:

 

D

E

F

Sales

$60,000

$38,000

$26,000

Variable costs

  36,000

  18,000

  12,000

Contribution margin

24,000

  20,000

14,000

Fixed expenses

  12,000

  15,000

  16,000

Operating income (loss)

$12,000

$5,000

$(2,000)

Shine Bright Company is thinking of dropping product line F because it is reporting an operating loss.  Assume that $8,000 of total fixed costs could be eliminated by dropping F. What effect would this decision have on operating income?

A) Operating income will increase $3,000.

B) Operating income will increase $15,000.

C) Operating income will decrease $6,000.

D) Operating income will decrease $3,000.

27) Shine Bright Company has three product lines: D, E, and F. The following information is available:

 

D

E

F

Sales

$60,000

$38,000

$26,000

Variable costs

  36,000

  18,000

  12,000

Contribution margin

24,000

  20,000

14,000

Fixed expenses

  12,000

  15,000

  16,000

Operating income (loss)

$12,000

$5,000

$(2,000)

Shine Bright Company is thinking of dropping product line F because it is reporting an operating loss.  Assume that $15,000 of total fixed costs could be eliminated by dropping F.  What effect would this decision have on operating income?

A) Operating income will increase $3,000.

B) Operating income will increase $1,000.

C) Operating income will decrease $6,000.

D) Operating income will decrease $3,000.

28) The income statement for Sweet Dreams Company is divided by its two product lines, blankets and pillows, as follows:

 

Blankets

Pillows

Total

Sales revenue

$620,000

$300,000

$920,000

Variable expenses

465,000

  240,000

  705,000

Contribution margin

155,000

60,000

  215,000

Fixed expenses

    76,000

    76,000

  152,000

Operating income (loss)

$79,000

$(16,000)

$63,000

Sweet Dreams is considering eliminating the pillow product line.  If they do so, they will be able to eliminate $76,000 of total fixed costs.  In that event, how would that business decision impact operating income?

A) Increase $76,000

B) Decrease $60,000

C) Increase $42,000

D) Increase $16,000

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