1) Sales Revenue Variable Expenses Contribution Margin Fixed Expenses Operating Income Product Lines Men's Women's Accessories 109,000 $ 56,000 $ 98,000 $ 59,000 30,000 90,000 50,000 $ 26,000 $ 8,000 $ 24,000 18,000 25,000 26,000 $ 8,000 $ (17,000) $ Total 263,000 179,000 84,000 67,000 17,000 $ $ 50% of each product lines' fixed costs are unavoidable and will still be incurred if the product line is discontinued. The store will remain in the same building, should the store discontinue the accessories product line since it is operating at a $17,000 loss? Answer: 2) TechSystem manufacturers an optical switch that it uses in its final product. They incurred the following manufacturing costs to manufacture 68,000 units last year: Direct materials Direct labor Variable MOH Fixed MOH Total product costs for 68,000 units $ 612,000 136,000 68,000 408,000 $ 1,224,000 any Another company has offered to sell TechSystem the 68,000 switches at $13.50 per switch. If they buy the switch rather than manufacture it, the manufacturing facilities that will be idle cannot be used for other purpose, yet none of the fixed costs are avoidable. Are they better off to make or buy the switches and by how much? Answer: 3) Oil Filter Manufacturing produces and sells oil filters for $3.35 each. A retailer has offered to purchase 20,000 oil filters for $1.75 as a one time special order. The following costs are incurred to manufacture one oil filter: Direct materials $0.80, Direct labor $0.40, variable MOH $0.20 and Fixed MOH of $0.50. Oil Filter Manufacturing will need to purchase a special stamping tool to stamp the customer's logo on the filter for $8,000 and it will have no use after this special order. The company is using idle capacity and it will not affect their regular business. Should they accept this special order