Kristen Lu purchased a used automobile for $23,750 at the beginning of last year and incurred the following operating costs:

Depreciation ($23,750 5 years)	$4,750
Insurance	$2,500
Garage rent	$1,300
Automobile tax and license	$650
Variable operating cost	$0.15 per mile

The variable operating cost consists of gasoline, oil, tires, maintenance, and repairs. Kristen estimates that, at her current rate of usage, the car will have zero resale value in five years, so the annual straight-line depreciation is $4,750. The car is kept in a garage for a monthly fee.

Required:

1.

Kristen drove the car 23,000 miles last year. Compute the average cost per mile of owning and operating the car. (Round your answers to 2 decimal places.)

fixed cost per mile
variable operating cost per mile
average cost per mile	$0.00

2.

Kristen is unsure about whether she should use her own car or rent a car to go on an extended cross-country trip for two weeks during spring break. What costs above are relevant in this decision? (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.)

	Variable operating costs
	Depreciation
	Automobile tax
	License costs
	Insurance costs

Delta Company produces a single product. The cost of producing and selling a single unit of this product at the companys normal activity level of 92,400 units per year is:

Direct materials	$	2.20
Direct labor	$	2.00
Variable manufacturing overhead	$	.80
Fixed manufacturing overhead	$	4.75
Variable selling and administrative expenses	$	1.90
Fixed selling and administrative expenses	$	1.00

The normal selling price is $24 per unit. The companys capacity is 114,000 units per year. An order has been received from a mail-order house for 1,800 units at a special price of $21.00 per unit. This order would not affect regular sales.

Required:

1.	If the order is accepted, by how much will annual profits be increased or decreased? (The order will not change the companys total fixed costs.)

Annual profits would _____ by _____

2.

Assume the company has 500 units of this product left over from last year that are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units? (Round your answer to 2 decimal places.)

relevant cost per unit=

Han Products manufactures 29,000 units of part S-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is:

Direct materials	$	5.60
Direct labor		7.00
Variable manufacturing overhead		2.90
Fixed manufacturing overhead		15.00
Total cost per part	$	30.50

An outside supplier has offered to sell 29,000 units of part S-6 each year to Han Products for $48.00 per part. If Han Products accepts this offer, the facilities now being used to manufacture part S-6 could be rented to another company at an annual rental of $796,500. However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier.

Required:

a.

Calculate the per unit and total relevant cost for buying and making the product? (Round your Per Unit answers to 2 decimal places.)

	Per Unit	Differential Costs	29,000	Units
	Make	Buy	Make	Buy
Cost of purchasing
Cost of making:
Direct materials
Direct labor
Variable overhead
Fixed overhead
Total cost

b.	How much will profits increase or decrease if the outside suppliers offer is accepted?

Profit would _____ by _____

Benoit Company produces three products, A, B, and C. Data concerning the three products follow (per unit):

	Product
	A				B				C
Selling price	$	100			$	80			$	90
Variable expenses:
Direct materials		30.00				24.00				6.30
Other variable expenses		30.00				36.00				56.70
Total variable expenses		60.00				60.00				63.00
Contribution margin	$	40.00			$	20.00			$	27.00
Contribution margin ratio		40	%			25	%			30	%

Demand for the companys products is very strong, with far more orders each month than the company can produce with the available raw materials. The same material is used in each product. The material costs $3 per pound with a maximum of 4,800 pounds available each month.

Required:

a.	Compute contribution margin per pound of materials used. (Round your intermediate calculations and final answers to 2 decimal places.)

	Contribution margin per pound
Product A
Product B
Product C

b.	Which orders would you advise the company to accept first, those for A, for B, or for C? Which orders second? Third?

Product A
Product B
Product C

Bed & Bath, a retailing company, has two departments, Hardware and Linens. The companys most recent monthly contribution format income statement follows:

				Department
	Total			Hardware			Linens
Sales	$	4,150,000		$	3,010,000		$	1,140,000
Variable expenses		1,242,000			830,000			412,000
Contribution margin		2,908,000			2,180,000			728,000
Fixed expenses		2,380,000			1,500,000			880,000
Net operating income (loss)	$	528,000		$	680,000		$	(152,000	)

A study indicates that $374,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 14% decrease in the sales of the Hardware Department.

Required:

If the Linens Department is dropped, what will be the effect on the net operating income of the company as a whole?

_____ in net operating income _____