1. Horton Company sells its product for $63 per unit. The company's unit product cost based on the full capacity of 600,000 units is as follows:

Direct materials	$12
Direct labor	15
Manufacturing overhead	18
Unit product cost	$45

A special order offering to buy 60,000 units has been received from a foreign distributor. The only selling costs that would be incurred on this order would be $9 per unit for shipping. The company has sufficient idle capacity to manufacture the additional units. Two-thirds of the manufacturing overhead is fixed and would not be affected by this order. In negotiating a price for the special order, what should the minimum acceptable selling price per unit be?

	A.	$42
	B.	$45
	C.	$48
	D.	$54

2.

A study has been conducted to determine if one of the product lines of Kalamazoo Company should be discontinued. This product line generates a contribution margin of $300,000 per year. Fixed expenses allocated to the product line are $390,000 per year. It is estimated that $240,000 of these fixed expenses could be eliminated if the product line is discontinued. These data indicate that if the product line is discontinued, how would the company's overall net operating income change?

	A.	$60,000 increase
	B.	$60,000 decrease
	C.	$150,000 increase
	D.	$150,000 decrease

3.

Ferguson Company manufactures 4,000 parts per year; the parts are used in the assembly of one of the company's products. The unit product cost of these parts is:

Variable manufacturing cost	$32
Fixed manufacturing cost	18
Unit product cost	$50

The part can be purchased from an outside supplier at $40 per unit. If the part is purchased from the outside supplier, two-thirds of the fixed manufacturing costs can be eliminated. What would be the annual impact on the company's net operating income as a result of buying the part from the outside supplier?

	A.	$8,000 increase
	B.	$8,000 decrease
	C.	$16,000 increase
	D.	$16,000 decrease

4.

Northern Optical ordinarily sells the X-lens for $50. The variable production cost is $10, the fixed production cost is $18 per unit, and the variable selling cost is $1. A customer has requested a special order for 10,000 units of the X-lens to be imprinted with the customers logo. This special order would not involve any selling costs, but Northern Optical would have to purchase an imprinting machine for $50,000. What is the rock bottom minimum price below which Northern Optical should not go in its negotiations with the customer? In other words, below what price would Northern Optical actually be losing money on the sale? There is ample idle capacity to fulfill the order and the imprinting machine has no further use after this order.

	A.	$10
	B.	$15
	C.	$16
	D.	$50

5.

Colonial Heritage makes reproduction colonial furniture from select hardwoods.

	Chair	Tables
Selling price per unit	$80	$400
Variable cost per unit	$30	$200
Board feet per unit	2	10
Monthly demand	600	100

The companys supplier of hardwood will only be able to supply 2,000 board feet this month. What plan (the number of chairs and tables to be produced) would maximize profits?

	A	The company should make 600 chairs and 100 tables.
	B	The company should make 600 chairs and 80 tables.
	C	The company should make 500 chairs and 100 tables.
	D	The company should make 500 chairs and 80 tables.

6. The Hudson Corporation has 8,000 obsolete units of a product that are carried in inventory at a manufacturing cost of $160,000. If the units are remachined for $40,000, they could be sold for $72,000. Alternatively, the units could be sold for scrap for $28,000. Which alternative is more desirable?

	A.	Those units should be remachined.
	B.	Those units should be scraped.
	C.	The two alternatives are equivalent.
	D.	It cannot be determined without additional information.