1)

Serie Inc. reported the following results from last years operations:

Sales	$	16,800,000
Variable expenses		10,640,000
Contribution margin		6,160,000
Fixed expenses		5,488,000
Net operating income	$	672,000
Average operating assets	$	7,000,000

At the beginning of this year, the company has a $2,100,000 investment opportunity with the following characteristics:

Sales	$	2,520,000
Contribution margin ratio		50	% of sales
Fixed expenses	$	1,108,800

Last year's margin was closest to:

Multiple Choice

36.7%

67.3%

9.6%

4.0%

2)

Mcfarlain Corporation is presently making part U98 that is used in one of its products. A total of 7,000 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity:

	Per Unit
Direct materials	$	3.70
Direct labor	$	3.60
Variable overhead	$	1.40
Supervisor's salary	$	4.00
Depreciation of special equipment	$	3.90
Allocated general overhead	$	4.10

An outside supplier has offered to produce and sell the part to the company for $17.10 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the part were purchased instead of produced internally.

If management decides to buy part U98 from the outside supplier rather than to continue making the part, what would be the annual financial advantage (disadvantage)?

Multiple Choice

($30,800)

$25,200

$30,800

($25,200)