2.

Anderson Document Services, a document creation and copying company, has two departments, Design and Copying. The company's most recent monthly contribution format income statement follows: Department Sales Variable expenses Total Design Copying $355,000 $95,000 $260,000 217,750 61,750 156,000 Contribution margin Fixed expenses 137,250 60,880 33,250 38,050 104,000 22,830 Operating income (loss) $ 76,370 $ (4,800) $ 81,170 A study indicates that $17,375 of the fixed expenses being charged to the Design Department are sunk costs or allocated costs that will continue even if the Design Department is dropped. In addition, the elimination of the Design Department would result in a 5% decrease in the sales of the Copying Department. Required: a. If the Design Department is dropped, what will be the effect on the operating income of the company as a whole? Operating income by b. Should the Design department be dropped? Yes A firm makes two products: frying pans and saucepans. Frying pans sell for $48 each and saucepans sell for $38 each. The variable cost of making a frying pan is $29.0, and the variable cost of making saucepans is $9.8. The firm has additional manufacturing costs of $2.8 million. Required: 1. If the firm sells 100 more saucepans, what is the additional profit to the firm? Additional profit 2. If the firm could sell either one more saucepan or one more frying pan, which product would the firm prefer to sell? Saucepan O Frying pan