QUESTION 1

The management of Heider Corporation is considering dropping product J14V. Data from the company's accounting system appear below:
	Sales	$920,000
	Variable expenses	$388,000
	Fixed manufacturing expenses	$370,000
	Fixed selling and administrative expenses	$250,000

In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $233,000 of the fixed manufacturing expenses and $194,000 of the fixed selling and administrative expenses are avoidable if product J14V is discontinued. What would be the effect on the company's overall net operating income if product J14V were dropped?

	A.	Overall net operating income would increase by $88,000.
	B.	Overall net operating income would increase by $105,000.
	C.	Overall net operating income would decrease by $88,000.
	D.	Overall net operating income would decrease by $105,000.

7 points

QUESTION 2

A customer has requested that Inga Corporation fill a special order for 2,800 units of product K81 for $32 a unit. While the product would be modified slightly for the special order, product K81's normal unit product cost is $17.70:

Direct materials	$ 5.20
Direct labor	3.00
Variable manufacturing overhead	2.30
Fixed manufacturing overhead	7.20
Unit product cost	$17.70

Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like modifications made to product K81 that would increase the variable costs by $1.30 per unit and that would require an investment of $16,000 in special molds that would have no salvage value.

This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order. If the special order is accepted, the company's overall net operating income would increase (decrease) by:

	A.	$(2,600)
	B.	$40,560
	C.	$16,200
	D.	$(15,700)