1.

A guitar manufacturer is considering eliminating its electric guitar division because its $86,110 expenses are higher than its $81,130 sales. The company reports the following expenses for this division.

	Avoidable Expenses				Unavoidable Expenses
Cost of goods sold	$	58,500
Direct expenses		11,750			$	1,450
Indirect expenses		980				2,200
Service department costs		9,600				1,630

Should the division be eliminated? (Any loss amount should be indicated with minus sign.)

2.

A division of a large company reports the information shown below for a recent year. Variable costs and direct fixed costs are avoidable, and 50% of the indirect fixed costs are avoidable. Based on this information, should the division be eliminated?

Sales	$	255,000
Variable costs		146,000
Fixed costs
Direct		39,000
Indirect		52,000
Operating loss	$	(18,000	)

1-a. Compare the amounts of total revenues and total avoidable expenses. 1-b. Based on this information, should the division be eliminated?

3.

Radar Company sells bikes for $480 each. The company currently sells 4,400 bikes per year and could make as many as 4,790 bikes per year. The bikes cost $255 each to make: $165 in variable costs per bike and $90 of fixed costs per bike. Radar received an offer from a potential customer who wants to buy 390 bikes for $440 each. Incremental fixed costs to make this order are $47,000. No other costs will change if this order is accepted. Compute Radars additional income (ignore taxes) if it accepts this order.