1. Assume a retailing company has two departmentsDepartment A and Department B. The companys most recent contribution format income statement follows:

	Total	Department A	Department B
Sales	$ 800,000	$ 350,000	$ 450,000
Variable expenses	320,000	120,000	200,000
Contribution margin	480,000	230,000	250,000
Fixed expenses	400,000	140,000	260,000
Net operating income (loss)	$ 80,000	$ 90,000	$ (10,000)

The company says that $110,000 of the fixed expenses being charged to Department B are sunk costs or allocated costs that will continue if the segment is discontinued. However, if Department B is discontinued the sales in Department A will drop by 7%. What is the financial advantage (disadvantage) of discontinuing Department B?

2. Assume a company is considering adding a new product. The expected cost and revenue data for this product are as follows:

Annual sales	5,000	units
Unit selling price	$ 60
Unit variable costs:
Production	$ 33
Selling	$ 6
Incremental fixed costs per year:
Production	$ 33,000
Selling	$ 45,000

If the company adds the new product, it expects the contribution margin of other product lines to drop by $15,200 per year. What is the financial advantage (disadvantage) of adding the new product?

3. Assume a company is considering buying 10,000 units of a component part rather than making them. A supplier has agreed to sell the company 10,000 units for a price of $40 per unit. The companys accounting system reports the following costs of making the part:

	Per Unit	10,000 Units per Year
Direct materials	$ 18	$ 180,000
Direct labor	12	120,000
Variable manufacturing overhead	2	20,000
Fixed manufacturing overhead, traceable	8	80,000
Fixed manufacturing overhead, allocated	4	40,000
Total cost	$ 44	$ 440,000

One-half of the traceable fixed manufacturing overhead relates to supervisory salaries and the remainder relates to depreciation of equipment with no salvage value. If the company chooses to buy this component part from a supplier, then the supervisor who oversees its production would be discharged. If the company begins buying the part from a supplier, it can use freed up capacity to produce and sell 2,500 more units of another product that earns a contribution margin per unit of $7.00. What is the financial advantage (disadvantage) of buying 10,000 units from the supplier?