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Lattimer Company had the following results of operations for the past year: $ 174,750 Sales (15,000 units at $11.65) Variable manufacturing costs Fixed manufacturing costs Selling and administrative expenses (all fixed) Operating income $92, 250 15,750 30,750 (138,750) $ 36,000 A foreign company offers to buy 4,300 units at $6.80 per unit. In addition to existing costs, selling these units would add a $0.18 selling cost for export fees. Lattimer's annual production capacity is 25,000 units. If Lattimer accepts this additional business, the special order will yield a: Multiple Choice O $1,720 loss. $2,494 loss. O $2,795 profit. $2,021 profit. O $6,794 loss. Gordon Corporation produced 10,000 digital watches in the current year. Variable costs are $8 per watch. Overhead assigned is $2.25 per watch. A supplier offers the watches for $9.50 each. Gordon's production manager reports the incremental overhead is $1.25 per watch. Gordon should: Multiple Choice Buy the watches as they would save $0.75 per watch. Buy the watches as they would save $1.75 per watch. Buy the watches as they would save $1.50 per watch. Continue making the watches as an additional $1.50 per watch would be incurred if bought from the supplier. Continue making the watches as an additional $0.25 per watch would be incurred if bought from the supplier. Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $3 per unit. Bluebird currently produces and sells 75,000 units at $7.00 each. This level represents 80% of its capacity. These bird feeders would be marketed under the wholesaler's name and would not affect Bluebird's sales through its normal channels. Production costs for these units are $3.50 per unit, which includes $2.25 variable cost and $1.25 fixed cost. If Bluebird accepts this additional business, the incremental cost will be: Multiple Choice $38,750. O $7,500. O $33,750. O $45.000. $11,250. A company paid $200,000 ten years ago for a specialized machine that has no salvage value and is being depreciated at the rate of $10,000 per year. The company is considering using the machine in a new project that will have incremental revenues of $28,000 per year and annual cash expenses of $20,000. In analyzing the new project, the $200,000 original cost of the machine is an example of a(n): Multiple Choice Out-of-pocket cost. Sunk cost. Opportunity cost. Variable cost. O Incremental cost. The following present value factors are provided for use in this problem. Periods 1 2 3 Present Value of $1 at 8% 0.9259 0.8573 0.7938 0.7350 Present Value of an Annuity of $1 at 8% 0.9259 1.7833 2.5771 3.3121 4 Xavier Co. wants to purchase a machine for $36,600 with a four year life and a $1,200 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $11,600 in each of the four years. What is the machine's net present value? Multiple Choice O $(1,820). $1,820. O $2,702 $39,302. O $(2,702)
