2.

Part A42 is used by Elgin Corporation to make one of its products. A total of 23,000 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity:

	Per Unit
Direct materials	$8.90
Direct labor	$10.30
Variable manufacturing overhead	$6.90
Supervisor's salary	$7.00
Depreciation of special equipment	$9.40
Allocated general overhead	$6.70

An outside supplier has offered to make the part and sell it to the company for $36.00 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including the direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the part were purchased instead of produced internally. In addition, the space used to make part A42 could be used to make more of one of the company's other products, generating an additional segment margin of $30,000 per year for that product. What would be the impact on the company's overall net operating income of buying part A42 from the outside supplier?

a) Net operating income would decrease by $36,700 per year

b) Net operating income would decrease by $241,400 per year

c) Net operating income would increase by $30,000 per year

d) Net operating income would decrease by $299,000 per year

9.

Eley Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 53,000 units per month is as follows:

Direct materials	$49.10
Direct labor	$9.40
Variable manufacturing overhead	$2.40
Fixed manufacturing overhead	$19.90
Variable selling & administrative expense	$4.40
Fixed selling & administrative expense	$21

The normal selling price of the product is $112.10 per unit.

An order has been received from an overseas customer for 3,300 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $2.50 less per unit on this order than on normal sales.

Direct labor is a variable cost in this company.

Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $89.40 per unit. By how much would this special order increase (decrease) the company's net operating income for the month?

a) $(67,000)

b) $22,110

c) $87,780

d) $(55,440)

10.

Eley Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 43,000 units per month is as follows:

Direct materials	$44.10
Direct labor	$8.40
Variable manufacturing overhead	$1.40
Fixed manufacturing overhead	$17.90
Variable selling & administrative expense	$2.40
Fixed selling & administrative expense	$11

The normal selling price of the product is $92.10 per unit.

An order has been received from an overseas customer for 2,300 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.50 less per unit on this order than on normal sales.

Direct labor is a variable cost in this company.

Suppose the company is already operating at capacity when the special order is received from the overseas customer. What would be the opportunity cost of each unit delivered to the overseas customer?

a) $35.80

b) $11.40

c) $12.70

d) $10.20

11.

Eley Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 57,000 units per month is as follows:

Direct materials	$51.10
Direct labor	$9.80
Variable manufacturing overhead	$2.80
Fixed manufacturing overhead	$20.70
Variable selling & administrative expense	$5.20
Fixed selling & administrative expense	$25

The normal selling price of the product is $120.10 per unit.

An order has been received from an overseas customer for 3,700 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $2.90 less per unit on this order than on normal sales.

Direct labor is a variable cost in this company.

Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would require cutting back on production of 1,550 units for regular customers. The minimum acceptable price per unit for the special order is closest to:

a) $120.10

b) $99.30

c) $69.10

d) 87.45