2- Aircraft Products, a manufacturer of aircraft landing gear, makes 1,200 units each year of a special valve used in assembling one of its products. The unit cost of producing this valve includes variable costs of $72 and fixed costs of $55. The valves could be purchased from an outside supplier at $79 each. If the valve were purchased from the outside supplier, 40% of the total fixed costs incurred in producing this valve could be eliminated. Buying the valves from the outside supplier instead of making them would cause the company's operating income to:

Multiple Choice

• Increase by $31,200.

• Decrease by $18,000.

• Decrease by $31,200.

• Increase by $18,000.

3- BT&T Corporation manufactures telephones. Recently, the company produced a batch of 640 defective telephones at a cost of $9,400. BT&T can sell these telephones as scrap for $10 each. It can also rework the entire batch at a cost of $6,900, after which the telephones could be sold for $21 per unit.

If BT&T reworks the defective telephones, by how much will its operating income change?

Multiple Choice

• Increase by $6,540

• Increase by $7,040

• Decrease by $2,860

• Decrease by $6,540

4- Seidman Company manufactures and sells 39,000 units of product X per month. Each unit of product X sells for $14 and has a contribution margin of $5. If product X is discontinued, $61,000 in fixed monthly overhead costs would be eliminated and there would be no effect on the sales volume of Seidman Company's other products. If product X is discontinued, Seidman Company's monthly income before taxes should:

Multiple Choice

• Increase by $134,000.

• Decrease by $134,000.

• Increase by $195,000.

• Decrease by $195,000.