Question

1. Sandy is considering moving from her apartment into a small house with a fenced yard. The house would be quieter, making it easier to study, and the yard would be great for her dog. The house is about the same distance from campus as her apartment. Rent for the apartment is $750 per month. If Sandy moves to the house, she must pay the remaining two months of the lease for the apartment. The rent for the house is $450 per month plus utilities. Sandy estimates the utilities will be $200 per month. The apartment is furnished but the house is not. A used furniture store has offered to finance the purchase of the necessary furniture for $50 per month.

Which of the following costs is not relevant to Sandy’s decision to move to the house or stay in the apartment?

	a.	The two months of remaining rent on the apartment
	b.	The cost for utilities for the house
	c.	The cost of renting the house
	d.	The cost of the furniture

2.

Quiz Company provided the following information related to its two product lines.

	Product 1	Product 2
Units sold	10,000	20,000
Price per unit	$20	$15
Variable cost per unit	10	12
Direct fixed costs	35,000	75,000

Common fixed costs total $45,000. Quiz Company allocated 1/3 of the common fixed costs to Product 1 and 2/3 of the common fixed costs to Product 2. All direct fixed costs will be avoidable if a product line is dropped.

Determine the segment margin for Product 1.

Note: Give your answer using dollar signs and commas but no decimal points (cents). Express negative numbers in parentheses.

Example: $12,345 or $(12,345)

3. Quiz Company provided the following information related to its two product lines.

	Product 1	Product 2
Units sold	10,000	20,000
Price per unit	$20	$15
Variable cost per unit	10	12
Direct fixed costs	35,000	75,000

Common fixed costs total $45,000. Quiz Company allocated 1/3 of the common fixed costs to Product 1 and 2/3 of the common fixed costs to Product 2. All direct fixed costs will be avoidable if a product line is dropped.

Assume that Product 1 and Product 2 are independent of one another.

Determine the amount that total operating income will increase (decrease) if Product 2 is dropped.

Note: Give your answer using dollar signs and commas but no decimal points (cents). Express negative numbers in parentheses.

Example: $12,345 or $(12,345)

4. Quiz Company provided the following information related to its two product lines.

	Product 1	Product 2
Units sold	10,000	20,000
Price per unit	$20	$15
Variable cost per unit	10	12
Direct fixed costs	35,000	75,000

Common fixed costs total $45,000. Quiz Company allocated 1/3 of the common fixed costs to Product 1 and 2/3 of the common fixed costs to Product 2. All direct fixed costs will be avoidable if a product line is dropped.

Assume that Product 1 and Product 2 are complements so that if Product 2 is dropped sales of Product 1 will decrease 10%.

Determine the amount that total operating income will increase (decrease) if Product 2 is dropped.

Note: Give your answer using dollar signs and commas but no decimal points (cents). Express negative numbers in parentheses.

Example: $12,345 or $(12,345)

5.

Quiz Company produces two products from a joint process: Product A and Product B. Joint costs total $10,000 per week. Product A sells at the split-off point for $12,000. Product B sells at the split-off point for $15,000. A customer has asked Quiz Company to process Product B further to create Product C. Product C will sell for $25,000. Additional processing costs Product B into Product C will be $5,000.

Determine the amount that operating income will increase (decrease) of Quiz Company processes Product B into Product C.

Note: Give your answer using dollar signs and commas but no decimal points (cents). Express negative numbers in parentheses.

Example: $12,345 or $(12,345)

Answer 1

(2) Determine the segment margin for Product 1 :-

Segment margin for Product 1 = $65000

	Total	Product 1	Product 2
Sales	$500,000	$200,000	$300,000
Less: Variable cost	$340,000	$100,000	$240,000
Contribution	$160,000	$100,000	$60,000
Less: Direct fixed cost	$110,000	$35,000	$75,000
Segment margin	$50,000	$65,000	($15,000)
Less: Common Fixed cost	$45,000
Net Income	$     5,000

(3) Determine the amount that total operating income will increase (decrease) if Product 2 is dropped

If Product 2 is dropped, Operating income increase = $15000

(4) Determine the amount that total operating income will increase (decrease) if Product 2 is dropped :-

If Product 2 is dropped, Sale of Product 1 is decrease by 10%

Decrease Contribution for Product 1 = $100000 * 10% = $10000

Total operating income increase = $15000 - $10000 = $5000

(5) Determine the amount that operating income will increase (decrease) of Quiz Company processes Product B into Product C.

Incremental Revenue - Incremental Cost

Incremental Revenue = $25000 - $15000 = $10000

Incremental cost = $5000

Operating income increase = $10000 - $5000 = $5000