1. Lusk Corporation produces and sells 13,900 units of Product X each month. The selling price of Product X is $21 per unit, and variable expenses are $15 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $74,000 of the $104,000 in fixed expenses charged to Product X would not be avoidable even if the product was discontinued. If Product X is discontinued, the companys overall net operating income would:

a. decrease by $53,400 per month

b. increase by $20,600 per month

c. by $50,600 per month

d. decrease by $50,600 per month

2. Barrus Corporation makes 35,000 motors to be used in the productions of its power lawn mowers. The average cost per motor at this level of activity is as follows:

Direct materials	$9.40
Direct labor	$8.40
Variable manufacturing overhead	$3.40
Fixed manufacturing overhead	$4.35

This motor has recently become available from an outside supplier for $23.65 per motor. If Barrus decides not to make the motors, none of the fixed manufacturing overhead would be avoidable and there would be no other use for the facilities. If Barrus decides to continue making the motor, how much higher or lower will the company's net operating income be than if the motors are purchased from the outside supplier? Assume that direct labor is a variable cost in this company.

a. $66,500 lower

b. $204,750 higher

c. $85,750 higher

d. $152,250 higher

3. Gwinnett Barbecue Sauce Corporation manufactures a specialty barbecue sauce. Gwinnett has the capacity to manufacture and sell 12,500 cases of sauce each year but is currently only manufacturing and selling 11,500. The following costs relate to annual operations at 11,500 cases:

	Total Cost
Variable manufacturing cost	$149,500
Fixed manufacturing cost	$50,000
Variable selling and administrative cost	$46,000
Fixed selling and administrative cost	$32,000

Gwinnett normally sells its sauce for $40 per case. A local school district is interested in purchasing Gwinnett's excess capacity of 1,000 cases of sauce but only if they can get the sauce for $16 per case. This special order would not affect regular sales or total fixed costs or variable costs per unit. If this special order is accepted, Gwinnett's profits for the year will:

a. increase by $360

b. decrease by $1,000

c. decrease by $11,500

d. decrease by $7,500

4. Nesmith Corporation is considering two alternatives: A and B. Costs associated with the alternatives are listed below:

	Alternative A	Alternative B
Materials costs	$44,000	$59,000
Processing costs	$50,000	$50,000
Equipment rental	$11,800	$28,900
Occupancy costs	$19,900	$30,800

What is the differential cost of Alternative B over Alternative A, including all of the relevant costs?

a. $43,000

b. $168,700

c. $125,700

d. $151,400