Part A

Acme Manufacturing produces and sells three products; X, Y, and Z. The company is considering dropping product X because it has experienced losses for each of the last three years. The following financial results for the years ended March 31, 2017 are available.

	X	Y	Z	Total
Sales	$1,200,000	$800,000	$2,000,000	$4,000,000
Variable costs	800,000	400,000	1,200,000	2,400,000
Fixed costs
Rent	60,000	40,000	100,000	200,000
Utilities	60,000	20,000	80,000	160,000
Maintenance	36,000	24,000	60,000	120,000
Supervision	120,000	20,000	60,000	200,000
Administration	200,000	80,000	120,000	400,000
Depreciation	72,000	48,000	120,000	240,000
Operating income (loss)	($148,000)	$168,000	$260,000	$280,000

The plant controller provided the following additional information:

Rent will not be affected by the decision to drop product X.

Utilities will decrease by $36,000 if product X is dropped

Maintenance will decrease by $28,000 if product X is dropped.

Supervision for product X can be eliminated if product X if dropped.

Elimination of product X will make it possible to eliminate two administration staff positions with combined salaries of $120,000.

Depreciation will not be affected by the decision to drop product X.

Question:

Should Acme Manufacturing eliminate product X? Show detailed calculations to support your decision.

Part B

Wally World manufactures cross country skis. Its cost of manufacturing 5,000 bindings is as follows:

Direct materials	$44,000
Direct labor	8,500
Variable overhead	5,000
Fixed overhead	16,000
Total manufacturing costs for 5,000 bindings	$73,500

Wally World can purchase bindings from another manufacturer for $11.00 each. They would pay an additional $1.50 per unit to have the bindings shipped to its manufacturing plant. They would add their logo to each binding for an additional $0.70 per unit. If Wally World purchases the bindings they can avoid fixed overhead costs of $7,500.

Question:

Should Wally World continue to manufacture the bindings or purchase them from the other manufacturer? Show detailed calculations to support your decision.