1. A company produces two kinds of hammers: one with longer handles and one with shorter handles. The longer hammer uses better materials and has a better design for back support. During the past year, 200,000 shorter hammers and 50,000 longer hammers were produced and sold. Fixed costs amount to $500,000. If the shorter hammers were dropped from production, $180,000 of the fixed costs would be avoided. If the longer hammers were dropped, $90,000 of the fixed costs would be avoided.

Shorter Longer

Variable expenses/unit $40 $86

Sales price/unit $44 $90

The contribution margin of the shorter and longer hammers, respectively is

a.	$200,000/$800,000	c.	$8000,000/$4,300,000
b.	$620,000/110,000	d.	$800,000/$200,000

2. If the company stops producing the longer hammer, what will be the effect on the companys income?

a.	Decrease by $200,000	c.	Decrease by $800,000
b.	Decrease by $110,000	d.	Decrease by $620,000

3. If the company stops producing the shorter hammer, what will be the effect on the companys income?

a. Decrease by $200,000 c. Decrease by $800,000

b. Decrease by $110,000 d. Decrease by $620,000

4. If y = total costs = 5x + 100, the variable cost per unit of activity is

a.	100	c.	5
b.	5x	d.	5x + 100

5. When variable costing is used, all of the following are considered product costs except

a.	Direct labor	c.	Variable overhead
b.	Fixed overhead	d.	Direct materials

6. When absorption costing is used, all of the following costs are considered product costs except

a.	Direct labor	c.	Variable overhead
b.	Variable selling and administrative expenses	d.	Fixed overhead

7. When will absorption costing income generally exceed variable costing income?

a.	Sales exceed production	c.	Production and sales are equal
b.	Production exceeds sales	d.	None of the preceding choices are correct