A) The management of Bernese Company is considering whether one of the departments in its retail stores should be eliminated. The contribution margin in the department is $150,000 per year. Fixed expenses allocated to the department are $130,000 per year. It is estimated that $120,000 of these fixed expenses will be eliminated if the department is discontinued.

- Which costs, if any, are irrelevant to this decision?

- If the department is eliminated, what will be the impact on the companys overall net operating income?

B) Composite Company produces 2,000 parts per year, which are used in the assembly of one of its products. The unit product cost of these parts is:

Variable manufacturing cost	$64
Fixed manufacturing cost	36
Unit product cost	$100

The part can be purchased from an outside supplier at $80 per unit. If the part is purchased from the outside supplier, two-thirds of the fixed manufacturing costs can be eliminated.

- What costs, if any, are relevant to this decision? Which costs are irrelevant?

- What would the annual impact on the companys net operating income be as a result of buying the part from the outside supplier?

- If the company purchased the parts from the outside and was able to free up factory space to pursue a new project that would bring in an extra $20,000 in income, what would happen to the overall profits of the company?

C) Ginger Company sells its product for $42 per unit. The companys unit product cost based on the full capacity of 400,000 units is as follows:

Direct materials	$ 8
Direct labor	10
Manufacturing overhead	12
Unit product cost	$30

A special order offering to buy 40,000 units has been received from a foreign distributor. The only selling costs that would be incurred on this order would be $6 per unit for shipping. The company has sufficient idle capacity to manufacture the additional units. Two-thirds of the manufacturing overhead is fixed and would not be affected by this order. If the foreign distributor is willing to pay $32 per unit, what would the impact on profits be if the company takes the special order?

D)

	Chairs	Tables
Selling Price per Unit	$80	$400
Variable Cost per Unit	$30	$200
Board Feet per Unit	2	10
Monthly Demand	600	100

The companys supplier of hardwood will only be able to supply 2,000 board feet this month. How many chairs and tables should the company produce to best utilize the 2,000 board feet of wood? (in other words, which combination would maximize profits?)

E) The Pixalator Corporation has 8,000 obsolete units of a product that are carried in inventory at a manufacturing cost of $160,000. If the units are remachined for $40,000, they could be sold for $72,000. Alternatively, the units could be sold for scrap for $28,000. Should the products be sold as is or processed further (show calculations)?