1. ABC Company is considering Alternative A and Alternative B. Costs associated with the alternatives are listed below:

	Alternative A			Alternative B
Materials costs	$	40,000		$	56,000
Processing costs	$	37,000		$	37,000
Equipment rental	$	13,000		$	13,000
Occupancy costs	$	15,000		$	22,000

Are the materials costs and processing costs relevant in the choice between alternatives A and B?

a. Neither materials costs nor processing costs are relevant

b. Both materials costs and processing costs are relevant

c. Only processing costs are relevant

d. Only materials costs are relevant

2. ABC Company is considering Alternative A and Alternative B. Costs associated with the alternatives are listed below:

	Alternative A			Alternative B
Materials costs	$	40,000		$	56,000
Processing costs	$	37,000		$	37,000
Equipment rental	$	13,000		$	13,000
Occupancy costs	$	15,000		$	22,000

What is the financial advantage (disadvantage) of Alternative B over Alternative A?

a. $116,500

b. $105,000

c. $128,000

d. $23,000

3. ABC Fitness Club is planning for the coming year. Investors would like to earn a 10% return on the company's $37,000,000 of assets. The company primarily incurs fixed costs to maintain the facilities and equipment. Fixed costs are projected to be $12,600,000 for the year. About 540,000 members are expected to buy/renew their membership each year. Variable costs are about $13 per swimmer. The ABC Fitness Club has a favorable reputation in the area and therefore, has some control over the membership price. Using a cost-plus approach, what price should ABC Fitness Club charge for a membership?

a. $29.48

b. $36.33

c. $6.85

d. $43.19

4. ABC manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but currently produces and sells 75,000 seats per year. The following information relates to the current production of the product:

Sale price per unit	$400
Variable costs per unit:
Manufacturing	$240
Marketing and administrative	$70
Total fixed costs:
Manufacturing	$760,000
Marketing and administrative	$230,000

If a special sales order is accepted for 7400 seats at a price of $350 per unit, and fixed costs remain unchanged, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)

a. Increase by $296,000

b. Increase by $2,590,000

c. Increase by $4,000,000

d. Decrease by $296,000