Question

*please show calculations*

1. Shelby Company produces three products: X, Y, and Z. Data about the three products are as follows:

($ per unit)	X	Y	Z
Selling Price	80	56	70
Less: Variable expenses:
Direct materials	24	15	9
Labor and overhead	24	27	40
Total variable expenses	48	42	49
Unit Contribution Margin	32	14	21

Demand for the company’s products is very strong. With far more orders each month than the company can produce with the available raw materials. The same material is used in each product. It costs $3 per pound and the maximum amount the company can obtain is 5,000 pounds per month.

A. If Shelby dedicates its 5,000 pounds of materials to their highest and best use, what is the resulting contribution margin?

1. $160,000
2. $23,000
3. $20,000
4. $35,000
5. $14,000

B. Assume the company has identified a new supplier of the material. What is the highest price Shelby would be willing to pay to obtain supplies of the material?

1. $10.00
2. $5.80
3. $7.00
4. $4.00
5. $30.00

2. Buchanan Company has 15,000 obsolete model cell phones that are carried in inventory at a cost of $1,800,000. If these cell phones are upgraded at a total cost of $630,000, they can be sold for a total of $750,000. Alternatively, Buchanan can sell the cell phones in their present condition for $160,000.

A. The sunk cost in this situation is:

1. $750,000
2. $630,000
3. $1,800,000
4. $160,000
5. $2,430,000

B. Buchanan should:

1. should upgrade the cell phones because the net advantage of doing so is $120,000
2. should scrap the cell phones because the net advantage of doing so is $160,000
3. should keep the cell phones in inventory because pursuing either alternative would result in an unacceptable loss based on their original cost
4. should scrap the cell phones because the net advantage of doing so is $40,000

Answer 1

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