1) CK Inc. has two divisions, S1 and Q2. S1 can produce up to 1,000 units of T97 per year. 500 units can be sold at a market price of $66. Q2 needs 500 units. For interdivisional sales, variable selling cost can be avoided. Last year, S1 incurred the following unit costs:

• Variable manufacturing costs $35
• Fixed manufacturing costs $20
• Variable selling cost $ 5

What is the opportunity cost for S1? Round your answer to the nearest whole number.

Answer:

2)A company manufactures toys for children. They have provided you with some information about their normal monthly operations:

Units produced per month	15,000 toys
Machine-hours	4,000 hours
Direct manufacturing labour hours	10,000 hours
Direct manufacturing labour per hour	$24
Direct materials per unit	$200
Variable manufacturing overhead costs	$322,500
Fixed costs:
Fixed manufacturing overhead costs	$1,200,000
Marketing and distribution costs	$1,125,000
Research and development costs	$900,000

What is the unit cost for establishing a minimum bid on a one-time-only special order of 1,000 toys (assume the purchase has no other impacts to existing operations)? Also assume that all cost relationships remain the same except a one-time setup charge of $80,000 that will be incurred to place the order.

a.

309.5

b.

277.5

c.

317.50

d.

285.5

e.

269.5

3) Springflowers Corporation, whose tax rate is 40%, has two sources of funds: long-term debt with a market value of $8,000,000 and an interest rate of 8%, and equity capital with a market value of $12,000,000 and a cost of equity of 12%. Springflowers has two operating divisions, the Blue division and the Gold division, with the following financial measures for the current year:

	Total Assets	Current Liabilities	Operating Income
Blue Div.	$9,500,000	$2,800,000	$1,055,000
Gold Div.	$11,000,000	$2,200,000	$1,200,000

What is the Economic Value Added (EVA) for the Blue Division?

a.$188,600

b.-$233,400

c.-$63,800

d.$433,960

e.$21,960