a.

Walters manufactures a specialty food product that can currently be sold for $21.80 per unit and has 19,800 units on hand. Alternatively, it can be further processed at a cost of $11,800 and converted into 11,800 units of Deluxe and 5,800 units of Super. The selling price of Deluxe and Super are $31.20 and $19.80, respectively. The incremental net income of processing further would be:

$51,360.

$39,560.

$17,800.

$43,800.

$11,800.

b.

Chang Industries has 2,200 defective units of product that have already cost $14.20 each to produce. A salvage company will purchase the defective units as they are for $5.20 each. Chang's production manager reports that the defects can be corrected for $5.80 per unit, enabling them to be sold at their regular market price of $21.40. The incremental income or loss on reworking the units is:

$22,880 loss.

$22,880 income.

$12,760 loss.

$35,640 income.

$34,320 income.

c.

Lattimer Company had the following results of operations for the past year:

Sales (15,000 units at $12.10)		$181,500
Variable manufacturing costs	$99,000
Fixed manufacturing costs	22,500
Selling and administrative expenses (all fixed)	37,500	(159,000)
Operating income		$22,500

A foreign company whose sales will not affect Lattimer's market offers to buy 5,200 units at $7.70 per unit. In addition to existing costs, selling these units would add a $0.27 selling cost for export fees. If Lattimer accepts this additional business, the special order will yield a:

$8,684 loss.

$4,316 profit.

$3,484 loss.

$5,720 profit.

$2,080 loss.

d.

Granfield Company is considering eliminating its backpack division, which reported an operating loss for the recent year of $41,300. The division sales for the year were $946,700 and the variable costs were $468,000. The fixed costs of the division were $520,000. If the backpack division is dropped, 40% of the fixed costs allocated to that division could be eliminated. The impact on Granfield's operating income for eliminating this business segment would be:

$270,700 increase

$478,700 decrease

$208,000 increase

$270,700 decrease

$478,700 increase