QUESTION 36

1. Kristen Company manufactures three products: X, Y, and Z. The demand for each product is 100 units. The selling price, variable expenses, and contribution margin for one unit of each product follow:

   	Product
   	X	Y	Z
   Selling price	$140	$300	$390
   Less variable expenses (Only Special steel)	50	100	150
   Contribution margin	$90	$200	$240
   Steel need to make 1 unit	1 kg	2 kg	3 kg

   The same special steel is used for all three products. 1 kg of the steel costs $50. Kristen can buy up to 420 kgs.

   Assume that for some reason, Kristen have made all units needed for X and Y, and 120 kg of the steel is left to make Z.

   Kristen is considering using a new technology patented by LessMat Company. If the technology is used, the amount of steel needed to make one unit of Z is reduced to 2.5 kg.

   The cost of using the technology is $2,000.

   Using the new technology would bring Kristen a(n):

   	A.	$1,000 disadvantage
   	B.	$0 advantage
   	C.	$400 advantage
   	D.	$1,120 advantage
   	E.	$80 disadvantage

4 points

QUESTION 37

1. Tom, the owner of Vally Pizzas, bought his current pizza oven two years ago for $9,000. After having been depreciated for two years for a total of $6,000, it now has a book value of $3,000. This oven has 1 year useful life remaining.

   He can purchase a new oven for $2,700. The new oven will last 1 year. The new oven would save him $2,500 annually in electricity.

   If the new oven is purchased, the current oven could be sold for $300. Each of the ovens has a zero value at the end of its life.

   In terms of earnings, if he replaces the oven with the new one, he would have a(n):

   	A.	$300 advantage
   	B.	$100 advantage
   	C.	$400 disadvantage
   	D.	$200 disadvantage

4 points

QUESTION 38

1. Ace Company has two product lines. The following income statements are shown for its two product lines and the company as a whole:

   	Office Supplies	Computer	Total
   Sales	$250,000	$360,000	$610,000
   Less: Variable expenses	100,000	265,000	365,000
   Contribution margin	$150,000	$95,000	$245,000
   Less: Fixed expenses	70,000	150,000	220,000
   Operating income	$80,000	(55,000)	$25,000

   Additional information:

   * Management estimates that the dropping of the Computer product line would result in a 10% decrease in sales in the Office Supplies product line.

   * If the Computer product line is dropped, 80% of the Computer product lines fixed expenses will be eliminated.

   If the Computer product line is dropped, the companys profit will:

   	A.	Increase by $55,000
   	B.	Decrease of $58,000
   	C.	Increase by $10,000
   	D.	Decrease by $25,000