1.Omar Industries manufactures two products: Regular and Super. The results of operations for 20x1 follow.

	Regular				Super				Total
Units		15,000				3,000				18,000
Sales revenue	$	300,000			$	660,000			$	960,000
Less: Cost of goods sold		228,000				360,000				588,000
Gross Margin	$	72,000			$	300,000			$	372,000
Less: Selling expenses		72,000				140,000				212,000
Operating income (loss)	$	0			$	160,000			$	160,000

Fixed manufacturing costs included in cost of goods sold amount to $3 per unit for Regular and $20 per unit for Super. Variable selling expenses are $4 per unit for Regular and $20 per unit for Super; remaining selling amounts are fixed. If Omar Industries eliminates Regular and uses the available capacity to produce and sell an additional 1,300 units of Super, what would be the impact on operating income?

Multiple Choice:

• $73,000 increase
• $58,000 increase
• $99,000 increase
• $55,000 increase
• None of the answers is correct.

2.Howard Enterprises, which has three departments, recently reported the following results:

		A				B				C
Sales revenue	$	18,000			$	69,000				63,000
Less: Operating costs		17,000				86,100				79,500
Operating income (loss)	$	1,000			$	(17,100	)		$	(16,500	)

The company incurred variable operating costs as well as $38,000 of fixed operating costs. The $38,000 amount was allocated to A, B, and C on the basis of sales revenue and is included in the cost figures noted above. Which department(s), if any, should be closed if none of the fixed operating costs can be avoided?

Multiple Choice:

• None of the departments should be closed.
• Department B.
• Department C.
• Department A.
• Departments B and C.