The Talbot Company makes wheels that it uses in the production of bicycles. Talbot's costs to produce 100,000 wheels annually are:

	Direct materials.............................	$30,000
	Direct labor...................................	$50,000
	Variable overhead..........................	$20,000
	Fixed overhead..............................	$70,000

An outside supplier has offered to sell Talbot similar wheels for $1.25 per wheel. If the wheels are purchased from the outside supplier, $15,000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $45,000 per year.

1)If Talbot chooses to buy the wheel from the outside supplier, then the change in annual net operating income due to accepting the offer is a:

A) $35,000 increase

B) $10,000 decrease

C) $45,000 increase

D) $70,000 increase

Regis Company makes the plugs it uses in one of its products at a cost of $36 per unit. This cost includes $8 of fixed overhead. Regis needs 30,000 of these plugs annually, and Orlan Company has offered to sell them to Regis at $33 per unit. If Regis decides to purchase the plugs, $60,000 of the annual fixed overhead will be eliminated, and the company may be able to rent the facility previously used for manufacturing the plugs.

2) If Regis Company purchases the plugs but does not rent the unused facility, the company would:

A) save $3.00 per unit.

B) lose $6.00 per unit.

C) save $6.00 per unit.

D) lose $3.00 per unit.

3) If the plugs are purchased and the facility rented, Regis Company wishes to realize $100,000 in savings annually. To achieve this goal, the minimum annual rent on the facility must be:

A) $10,000

B) $40,000

C) $70,000

D) $190,000

Dockwiller Inc. manufactures industrial components. One of its products, which is used in the construction of industrial air conditioners, is known as D53. Data concerning this product are given below:

		Per Unit Data
	Selling price.....................................................	$150
	Direct materials...............................................	$26
	Direct labor......................................................	$3
	Variable manufacturing overhead.....................	$1
	Fixed manufacturing overhead.........................	$17
	Variable selling expense...................................	$2
	Fixed selling and administrative expense.........	$18

The above per unit data are based on annual production of 8,000 units of the component. Direct labor can be considered to be a variable cost.

4)The company has received a special, one-time-only order for 300 units of component D53. There would be no variable selling expense on this special order and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company would not be affected by the order. However, assume that Dockwiller has no excess capacity and this special order would require 30 minutes of the constraining resource, which could be used instead to produce products with a total contribution margin of $1,800. What is the minimum price per unit on the special order below which the company should not go?

A) $73

B) $36

C) $53

D) $6