Q1 Scrumptious Restaurant sells Asian foods and some drinks. The following per bottle cost information is available for its craft sake:

Direct materials	$11.30
Direct labor	$10.50
Variable manufacturing overhead	$3.10
Fixed manufacturing overhead	$2.20

A supplier has offered to sell a bottle of craft sake to Scrumptious for $20 per unit. If Scrumptious buys the sake from the supplier, the restaurant may lose $10,000 from its current revenue annually as its craft sake has a better quality than the suppliers. Scrumptious needs 1,500 bottles of sake annually and the fixed manufacturing overhead is unavoidable. Should Scrumptious produce the craft sake by itself or purchase it from the supplier?

		Scrumptious should produce the craft sake by itself.
		Scrumptious should purchase the craft sake from the outside vendor.

Q2

Borracho Company manufactures three models of beer. The following per bottle data are available:

	Light	Premium	Strong
Sales price	$1.50	$2	$2.50
Variable costs	$0.80	$1.20	$1.60
Units produced per machine hour	30	27	23

Under the machine hour capacity limit of 3,000 hours per year, which model is the most profitable to produce?

		Light
		Premium
		Strong

Q3

Q30.

One Star Company sells various lines of cell phones and the income statement of the second quarter of 2021 for selected products is presented:

	Mars S20	Mars A50
Net Sales Revenue	$1,500,000	$11,250,000
Cost of Goods Sold
Variable	$970,000	$8,600,000
Fixed	$250,000	$950,000
Gross Profit	$280,000	$1,700,000
Selling and Administrative Expenses
Variable	$45,000	$1,040,000
Fixed	$490,000	$720,000
Operating Income	($255,000)	($60,000)

If One Star drops a product, the fixed selling and administrative expenses can be avoided but none of the fixed cost of goods sold can be avoided. Which of these two products should be dropped or not?

		One Star should drop Mars S20 only.
		One Star should drop Mars A50 only.
		One Star should drop both products.
		One Star should drop none of them.