1. The effect on a company's operating income of discontinuing a department with a contribution margin of $9206 and allocated overhead of $13100 (of which $4880 cannot be eliminated) would be to change operating income by how much? (Use a positive number to show an increase in operating income. Use a negative number to show a decrease in operating income)

2. Which of the following statements regarding relevant costs and sunk costs is incorrect?

Isolating relevant costs is desirable because only rarely will enough information be available to prepare a detailed income statement for multiple alternatives.

A sunk cost is a cost which cannot be avoided because it has already been incurred.

The type of cost presented to management for an equipment replacement decision should be limited to relevant costs.

Relevant costs can be studied using a differential approach but should not be considered with a total approach

3. Kayaks-For-Fun produces two kayak models, "River" and "Sea". The River model sells for $500 and has variable costs of $100 per unit. The Sea model sells for $600 and has variable costs of $450 per unit. Allocated fixed costs per unit are $300 for the River model and $50 for the Sea model per unit. Which statement about their production and sales mix is true?

They would prefer to produce and sell the River model because its unit contribution margin is highest.

They would prefer to produce and sell the River model because it has the highest selling price.

They are indifferent about which model to produce and sell because the full cost is the same for both models.

They would prefer to produce and sell the Sea model because its unit contribution is highest.

None of the other answers are correct.

4. Kayaks-For-Fun produces two kayak models, "River" and "Sea". The River model sells for $500 and has variable costs of $100 per unit. The Sea model sells for $600 and has variable costs of $450 per unit. Allocated fixed costs per unit are $300 for the River model and $50 for the Sea model per unit.Kayaks-For-Fun has a total of 320 labor hours available each month. The specialized skills required to build the kayaks makes it difficult for management to find additional workers. Assume the River model requires 4 labor hours per unit and the Sea model requires 1 labor hour per unit (most of the variable cost for the Sea model is related to expensive materials required for production). Kayaks-For-Fun sells everything it produces. Which statement is true?

None of the other answers are correct

They would be indifferent between selling the River and the Sea model.

20% of their sales should be the Sea model and 80% should be the River model.

They would prefer to sell the River model.

They would prefer to sell the Sea model

5. Kayaks-For-Fun produces two kayak models, "River" and "Sea". The River model sells for $500 and has variable costs of $100 per unit. The Sea model sells for $600 and has variable costs of $450 per unit. Allocated fixed costs per unit are $300 for the River model and $50 for the Sea model per unit.Assume Kayaks-For-Fun found additional labor, thereby eliminating that resource constraint. However, the company now faces limited available machine hours. It has a total of 3,000 machine hours available each month. The River model requires 16 machine hours per unit, and the Sea model requires 10 machine hours per unit. Kayaks-For-Fun sells everything it produces.Which statement is true about Kayaks-For-Fun?

It would prefer to sell the River model.

It would be indifferent about which model it sells.

None of the other answers are correct

It would prefer to sell the Sea model.

Machine hours should be used for allocating fixed manufacturing overhead

6. Trojan Company produces a single product. The cost of producing and selling a single unit of this product at the companys normal activity level of 8266 units per year is:

Direct materials	$2.48
Direct labor	$3.04
Variable manufacturing overhead	$0.52
Fixed manufacturing overhead	$4.26
Variable selling and administrative expense	$1.45
Fixed selling and administrative expense	$1.98

The normal selling price is $14.97 per unit. The companys capacity is 10063 units per month. An order has been received from an overseas source for 2002 units at the special price of $11.95 per unit. This order would not affect regular sales.If the order is accepted, how much will monthly profits increase or decrease? (The order will not change the companys total fixed costs.)PROVIDE YOUR ANSWER TO THE NEAREST DOLLAR

7. One of the dangers of allocating common fixed costs to a product line is that such allocations can make the line appear less profitable than it really is.

True or false

8. Only the variable costs identified with a product are relevant in a decision concerning whether to eliminate the product.

True or false

9. In a decision to drop a segment, the opportunity cost of the space occupied by the segment would be the profit that could be derived from the best alternative use of the space.

True or False

10. A differential cost is simply a variable cost

True or false

11. The book value of old equipment is not a relevant cost in a decision.

True or false