It costs a company $14 of variable costs and $6 of fixed costs to produce product Z200 that sells for $30. A foreign buyer offers to purchase 3,000 units at $18 each. The seller will incur special shipping costs of $5 per unit. If the special offer is accepted and produced with unused capacity, and none of the fixed costs are affected, then net income will:

a. increase $3,000.

b. increase $12,000.

c. decrease $12,000.

d. decrease $3,000.

2. Jobart Company is currently operating at full capacity. It is considering buying a part from an outside supplier rather than making it in-house. If Jobart purchases the part, it can use the released productive capacity to generate additional income of $30,000 from producing a different product. When conducting incremental analysis in this make-or-buy decision, the company should:

a. ignore the $30,000.

b. add $30,000 to other costs in the Cost to Make column.

c. add $30,000 to other costs in the Cost to Buy column..

d. subtract $30,000 from the other costs in the Costs to Make column.

3. A segment of Hazard Inc. has the following data.

Sales $200,000

Variable expense $140,000

Fixed expenses $100,000

If this segment is eliminated, what will be the effect on the remaining company? Assume that 50% of the fixed expenses will be eliminated and the rest will be allocated to the segments of the remaining company.

a. $120,000 increase.

b. $10,000 decrease.

c. $50,000 increase.

d. $10,000 increase.

4. Mendosa Company produces three products. All the products use a furnace operation, which has a maximum number of 10,000 hours available for production of all three products. The following information is available:

Product 1 Product 2 Product 3

Unit demand monthly 1,000 1,500 1,000

Per unit information:

Sales $35.00 $33.00 $29.00

Variable Costs 15.00 15.00 15.00

Furnace hours 4 3 2

From a profitability perspective, what order of production and amount would maximize profit?

Mendosa should produce the three products in the following order and amount: Product 1: 1,000 units, then

Product 2: 1,500 units, then

Product 3: 750 units

b. Mendosa should produce the three products in the following order and amount: Product 3: 1,000 units, then

Product 2: 1,500 units, then

Product 1: 875 units

c. Mendosa should produce the three products in the following order and amount: Product 1: 1,000 units, then

Product 2: 1,500 units, then

Product 3: 1,000 units

d. Mendosa should produce the three products in the following order and amount: Product 2: 1,500 units, then

Product 1: 1,000 units, then

Product 3: 750 units