Thomas Corp.has two divisions: East and West. One-third of the East Division's production is sold to the West Division of Thomas; the remainder is sold to outside customers. East Division's estimated sales and cost data for the year are as follows:

Sales to West Division Sales to Outsider

Revenue$36,000 $96,000

Variable costs24,000 48,000

Fixed costs6,600 33,000

Gross margin$5,400 $15,000

Unit sales24,000 48,000

An outside supplier has offered to provide the West Divisionwith 10,000units of products at a cost of $1.65 per unit. Assume that East Division cannot sell additional products to outsiders andfixed costs are not avoidable. Should West Division be allowed to purchase the products from the outside supplier, and why?

Multiple Choice

• No, because making the blades would save Dana Company $6,500.
• Yes, because buying the blades would save Dana Company $6,500.
• Yes, because buying the blades would save Dana Company $4,500.
• No, because making the blades would save Dana Company $5,500.

Richard Inc. manufactures three products, A, B, and C. Data regarding the company's sales and costs are as follows:

Item Product Line A Product Line B Product Line C

Sales $38,000 $65,000 $16,000

Variable costs$22,800 $35,000 $10,000

Contribution margin$15,200 $30,000 $6,000

Fixed costs:

Avoidable $4,700 $11,000 $4,200

Unavoidable $3,400 $6,500 $2,400

Pre-tax operating income$7,100 $12,500 $(-600)

Richard is considering dropping Product C due to the operatingloss. Assume Richard does not replace Product C after dropping it, the company's total pre-tax operating income will likely:

Multiple Choice

• Decrease by $1,800
• Decrease by $3,300
• Increase by $1,800
• Be unchanged
• Increase by $1,500