INCLUDE SOLUTIONS

1. KAN Inc. manufactures industrial components. One of its products, which is used in the construction of industrial air conditioners, is known as K65. Data concerning this product are given below:

		Per Unit
	Selling price	180
	Direct materials	29
	Direct labor	5
	Variable mfg overhead	4
	Fixed mfg overhead	21
	Variable SG&A expense	2
	Fixed SG&A expense	17

The above per unit data are based on annual production of 4,000 units of the component. Direct labor can be considered to be a variable cost.

The company has received a special, one-time-only order for 500 units of component K65. There would be no variable selling and administrative expense on this special order and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company would not be affected by the order.

Assuming that KAN has excess capacity and can fill the order without cutting back on the production of any product, the minimum price per unit on the special order should be ________. (Price should not go below this.)

a. 78

b. 180

c. 38

d. 59

2. ROWENA Corporation manufactures laser printers. ROWENA currently manufactures the 32,000 imaging drums that it uses in its printers. The annual costs to manufacture these 32,000 drums are as follows:

Variable Mfg cost		736,000
Fixed Mfg cost		2,080,000
Total cost		2,816,000

Hardware Solutions, Inc. has offered to provide Rowena with all of its imaging drum needs for 72 per drum. If Rowena accepts this offer, 70% of the fixed manufacturing cost above could be totally eliminated. Also, Rowena will be able to use the freed-up space to generate 240,000 of income each year in the production of alternative products.

The cost to make is___________________.

a. 2,432,000

b. 2,192,000

c. 2,304,000

d. 976,000

3. In June, the Universal Solutions Division of ZIGMA Corporation had average operating assets of 520,000 and a net operating income of 97,600. The company uses residual income, with a minimum required rate of return of 18%, to evaluate the performance of its divisions.

The Universal Solutions Division's residual income in June is __________.

a. 17,568

b. 4,000

c. 4,500

d. 17,543