1.San Ruiz Interiors provides design services to residential and commercial clients. The residential services produce a contribution margin of $410,000 and have traceable fixed operating costs of $470,000. Management is studying whether to drop the residential operation. If closed, the fixed operating costs will fall by $380,000 and San Ruiz' income will:

Multiple Choice answer:

increase by $30,000.

decrease by $320,000.

increase by $60,000.

decrease by $30,000.

increase by $320,000.

2.In early July, Colin Marks purchased a $87 ticket to the December 15 game of the Sarasota Shippers. Parking for the game was expected to cost approximately $39, and Marks would probably spend another $32 for a souvenir program and food. It is now December 14. The Shippers were having a miserable season and the temperature was expected to peak at 5 degrees on game day. Marks therefore decided to skip the game and took his wife to the movies, with tickets and dinner costing $70. The sunk cost associated with this decision situation is:

Multiple Choice answer:

$17.

$158.

$87.

None of the answers is correct.

$70.

3.Cornerstone, Inc. has $128,000 of inventory that suffered minor smoke damage from a fire in the warehouse. The company can sell the goods "as is" for $47,000; alternatively, the goods can be cleaned and shipped to the firm's outlet center at a cost of $26,000. There the goods could be sold for $83,000. What alternative is more desirable and what is the relevant cost for that alternative?

Multiple Choice answer:

Clean and ship to outlet center, $26,000.

Sell "as is," $128,000.

Clean and ship to outlet center, $154,000.

Clean and ship to outlet center, $109,000.

Neither alternative is desirable, as both produce a loss for the firm.

4.Elkhart, a division of Indiana Enterprises, currently makes 120,000 units of a product that has created a number of manufacturing problems. Elkhart's costs follow.

Manufacturing costs:

Variable=560,000

Fixed=183,000

Allocated corporate administrative cost=65,000

If Elkhart were to discontinue production, fixed manufacturing costs would be reduced by 70%. The relevant cost of deciding whether the division should purchase the product from an outside supplier is:

Multiple Choice answer:

• $688,100.
• $614,900.
• $753,100.
• $560,000.
• $743,000.