2.Barrus Corporation makes 33,000 motors to be used in the productions of its power lawn mowers. The average cost per motor at this level of activity is as follows:

Direct materials	$9.20
Direct labor	$8.20
Variable manufacturing overhead	$3.30
Fixed manufacturing overhead	$4.25

This motor has recently become available from an outside supplier for $23.05 per motor. If Barrus decides not to make the motors, none of the fixed manufacturing overhead would be avoidable and there would be no other use for the facilities. If Barrus decides to continue making the motor, how much higher or lower will the company's net operating income be than if the motors are purchased from the outside supplier? Assume that direct labor is a variable cost in this company.

$62,700 lower

$186,450 higher

$77,550 higher

$140,250 higher

3.Gwinnett Barbecue Sauce Corporation manufactures a specialty barbecue sauce. Gwinnett has the capacity to manufacture and sell 20,000 cases of sauce each year but is currently only manufacturing and selling 18,000. The following costs relate to annual operations at 18,000 cases:

	Total Cost
Variable manufacturing cost	$288,000
Fixed manufacturing cost	$64,000
Variable selling and administrative cost	$54,000
Fixed selling and administrative cost	$46,000

Gwinnett normally sells its sauce for $35 per case. A local school district is interested in purchasing Gwinnett's excess capacity of 2,000 cases of sauce but only if they can get the sauce for $18 per case. This special order would not affect regular sales or total fixed costs or variable costs per unit. If this special order is accepted, Gwinnett's profits for the year will:

increase by $1,800

decrease by $2,000

decrease by $18,000

decrease by $12,000

4.Nesmith Corporation is considering two alternatives: A and B. Costs associated with the alternatives are listed below:

	Alternative A	Alternative B
Materials costs	$47,000	$65,000
Processing costs	$53,000	$53,000
Equipment rental	$12,400	$29,200
Occupancy costs	$20,200	$31,400

What is the differential cost of Alternative B over Alternative A, including all of the relevant costs?

$46,000

$178,600

$132,600

$156,200

6.The management of Kabanuck Corporation is considering dropping product V41B. Data from the company's accounting system appear below:

Sales	$932,000
Variable expenses	$411,000
Fixed manufacturing expenses	$346,000
Fixed selling and administrative expenses	$253,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $213,000 of the fixed manufacturing expenses and $124,000 of the fixed selling and administrative expenses are avoidable if product V41B is discontinued.

According to the company's accounting system, what is the net operating income earned by product V41B? Include all costs in this calculationwhether relevant or not.

$78,000

$(521,000)

$(78,000)

$521,000

7. 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 56,000 units per month is as follows:

Direct materials	$50.60
Direct labor	$9.70
Variable manufacturing overhead	$2.70
Fixed manufacturing overhead	$20.50
Variable selling & administrative expense	$5.00
Fixed selling & administrative expense	$24

The normal selling price of the product is $118.10 per unit.

An order has been received from an overseas customer for 3,600 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 $2.80 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 $92.40 per unit. By how much would this special order increase (decrease) the company's net operating income for the month?

$(82,000)

$24,120

$97,920

$(72,360)