Multiple choice. (CPA) Choose the best answer.

1. The Woody Company manufactures slippers and sells them at $11 a pair. Variable manufac¬

turing costs are $4.95 a pair, and allocated fixed manufacturing costs are $1.65 a pair. The company has enough idle capacity available to accept a one-time-only special order of 20,000 pairs ofslippers at $6.60 a pair. Woody will not incur any marketing costs as a result ofthe special order. What would the effect on operating income be ifthe special order could be accepted without affecting normal sales?

(a) $0,

(b) $33,000 increase,

(c) $99,000 increase,

(d) $132,000 increase.

2. The Reno Company manufactures Part No. 498 for use in its production line. The manu¬

facturing costs per unit for 20,000 units of Part No. 498 are as follows:

Direct materials $ 6.60 Direct manufacturing labour 33.00 Variable manufacturing overhead 13.20 Fixed manufacturing overhead allocated 17.60

$70.40 The Tray Company has offered to sell 20,000 units of Part No. 498 to Reno for $66 per unit. Reno will make the decision to buy the part from Tray ifthere is an overall savings of at least $27,500 for Reno. If Reno accepts Tray’s offer, $9.90 per unit ofthe fixed overhead allocated would be totally eliminated. Furthermore, Reno has determined that the released facilities could be used to save relevant costs in the manufacture of Part No. 575.

For Reno to have an overall savings of $27,500, the amount of relevant costs that would have to be saved by using the released facilities in the manufacture of Part No. 575 would X be

(a) $88,000,

(b) $93,500,

(c) $137,500,

(d) $154,000.