1) X Company is considering a modification to one of its main products that would make it more attractive to customers. A market research study costing $8,000 was conducted, and it indicated that the company could increase the price of the product by $2.84 with no decrease in unit sales; the current price is $9.96. Variable costs for the product are $3.48 and will not change as a result of the modification, but additional equipment would have to be rented, increasing fixed costs from $11,200 to $15,200. At what unit sales level would X Company be indifferent between modifying the product and not modifying it?

2) X Company is considering buying a part next year that they currently make. This year's production costs for 3,200 units were:

		Total	Per-Unit
Materials		$11,040	$3.45
Direct labor [all variable]		10,080	3.15
Variable overhead		8,640	2.70
Fixed overhead		15,360	4.80

A company has offered to supply this part for $11.62 per unit. If X Company buys the part, $7,987 of the fixed overhead can be avoided. Also if X Company buys the part, it can use the freed-up resources to increase production of another product, resulting in additional contribution margin of $3,000. X Company is uncertain what production will be next year. At what production level would it be indifferent between making and buying the part?

3) X Company is considering buying a part next year that they currently produce. A company has offered to supply this part for $15.85 per unit. This year's per-unit production costs for 56,000 units were:

Materials	$6.90
Direct labor [all variable]	4.30
Total overhead	4.40

Of the total overhead costs, $78,400 were fixed, and $50,176 of these fixed overhead costs are unavoidable. If X Company buys the part, the resources that were used for production can be rented to another company for $80,000. Production next year is expected to increase to 60,350 units. If X Company buys the part instead of making it, it will save

4)X Company is considering outsourcing its email system. Total costs related to last month's in-house email operation, when there were 3,830 employee mailboxes, were as follows:

Variable costs:
Email license	$19,916
Virus protection license	6,128
Miscellaneous	19,916
Fixed costs
Computer hardware	29,874

$13,443 of the computer hardware costs were common costs that will continue even if the email system is abandoned, and X Company will still need to pay for the virus protection license. Y Company has offered to operate an email system for X Company for $14.00 per mailbox. Next year, X Company estimates that 4,135 mailboxes will be required per month. By how much will X Company's monthly profits change if they decide to outsource its email function to Y Company instead of managing the service internally? [A positive number means that make costs are more than buy costs; a negative number means that make costs are less than the buy costs.]

5) At the end of the year, a company offered to buy 4,830 units of a product from X Company for $12.00 each instead of the company's regular price of $19.00 each. The following functional income statement is for the 64,900 units of the product that X Company has already made and sold to its regular customers:

Sales		$1,233,100
Cost of goods sold		543,862
Gross margin		$689,238
Selling and administrative costs		154,462
Profit		$534,776

Fixed cost of goods sold for the year was $120,065, and fixed selling and administrative costs were $75,933. The special order product has some unique features that will require additional material costs of $0.85 per unit and the rental of special equipment for $3,000. (a) Profit on the special order would be

(b). Assume the following fact: regular variable selling and administrative costs include sales commissions equal to 2% of sales, but there will be no sales commissions on the special order. This will cause the special order profit to increase by

6) The following information is for X Company's two products, A and B:

			Product A	Product B
Revenue			$92,000	$92,000
Total variable costs			46,920	51,520
Total contribution margin			$45,080	$40,480
Total fixed costs
Avoidable			33,984	14,000
Unavoidable			23,616	14,000
Profit			$-12,520	$12,480

(a) If X Company drops Product A because it shows a loss, what will be the effect on firm profits?

(b) Assume that if X Company drops Product A, it can use the vacant space to increase sales of Product B by $37,200, but $3,000 of additional fixed costs will be incurred. This use of the vacant space will result in an increase in X Company's profits of?

7) X Company is planning to drop a department that has shown a loss over the past few years. Its accountant estimates that the savings from dropping the department will be $30,000 a year for the next 7 years. The accountant also believes that the company will be able to immediately sell some equipment that was used in the department for $18,000. Assuming a discount rate of 5%, what is the net present value of dropping the department?

8) X Company must decide whether to continue using its current equipment or replace it with new, more efficient equipment. The following information is available for the current and new equipment:

Current equipment
Current sales value			$18,000
Final sales value			3,690
Operating costs			66,050
New equipment
Purchase cost			$168,000
Final sales value			3,690
Operating costs			35,540

The current and new equipment will last for 6 years. If X Company replaces the current equipment, what is the approximate internal rate of return (enter your rate as a decimal; so 1% would be .01)