1.

1. SPI-K bakes gingerbread cookies and sells them by the dozen. During the holiday season, they bake 1,000 dozen cookies. They can sell the plain, undecorated cookies (as is) for $2 per dozen. If they decorate the cookies at an additional cost of $1 per dozen, each decorated dozen could be sold for $3.50. Should SPI-K sell the cookies undecorated (as is) or should the cookies be decorated (processed further)?

   a		SPI-K should decorate the cookies since operating income will be higher by $500 than if they sell them undecorated (as is).
   b		SPI-K should decorate the cookies since operating income will be higher by $3,500 than if they sell them undecorated (as is).
   c		SPI-K should sell undecorated cookies (as is) since operating income will be higher by $500 than if they sell them decorated (processed further).
   d		SPI-K should sell undecorated cookies (as is) since operating income will be higher by $3,500 than if they sell them decorated (processed further).

2. SPI-K manufactures and sells ceramic pots. Leone Corporation has offered SPI-K $10 per pot for 2,000 pots. SPI-Ks normal selling price is $12 per pot. The total manufacturing cost per pot is $9 and consists of variable costs of $7 per vase and fixed overhead costs of $2 per vase. (NOTE: Assume excess capacity and no effect on regular sales.) Should SPI-K accept or reject the special sales order?

   a		Accept, because operating income would increase $6,000.
   b		Reject, because operating income would decrease $6,000.
   c		Reject, because operating income would decrease $34,000.
   d		Accept, because operating income would increase $34,000.

3. If the sales price is $15, the variable cost is $5, the fixed cost is $11,000, and 11,000 units are produced, how many units need to be sold if the desired profit is $5,000?

   		11,500
   		8,500
   		1,600
   		500