Question 8 refers to the following:

Wintertime Company produces the handles which are used in the production of their snow shovels. Wintertimes costs to produce 80,000 handles annually are as follows:

Direct materials $25,000

Direct labor 42,000

Variable overhead 28,000

Fixed overhead 65,000

TOTAL $160,000

An outside supplier has offered to sell Wintertime similar handles for $1.50 per handle. If the handles are purchased from the outside supplier, $50,000 of annual fixed factory overhead will continue, and the facilities now being used to make the handles could be rented to another company for $40,000 per year.

8. If Wintertime chooses to buy the handles from the outside supplier, then the change in annual net income due to accepting the offer is a:

a. $30,000 decrease.

b. $80,000 increase.

c. $30,000 increase.

d. $65,000 increase.

9. Hanna Company produces a single product. The cost of producing and selling a single unit of this product at the companys normal activity level of 15,000 units per year is:

Direct materials $1.30

Direct labor 2.10

Variable overhead .40

Fixed overhead .25

Variable selling and

administrative expense .50

Fixed selling and

administrative expense .70

The normal selling price is $12 per unit. The companys capacity is 20,000 units per year. An order has been received from a mail-order house for 5,000 units at a special price of $6 per unit. This order would not disturb regular sales. 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.)

a. $8,500 increase

b. $8,500 decrease

c. $3,750 increase

d. $3,750 decrease

10. Refer to the data in #9. Assume the company has 1,500 units of this product left over from last year that are vastly inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost figure is relevant for establishing a minimum selling price for these units?

a. $4.30

b. $ .50

c. $5.25

d. none of the costs are relevant