Question 7
ABC Company. has the capacity to produce 15,000 lamps each month. Current regular
production and sales are 10,000 lamps at a selling price of $15 each. The costs of
producing each lamp is:
direct materials
$5.00
direct labor
3.00
variable overhead
0.75
fixed overhead
1.50
variable selling costs
0.25
fixed selling costs
1.00
ABC Company has received a special order who wants to purchase 6,000 lamps at a
reduced price of $10 per lamp. ABC Company has determined that there would be no
selling expenses in connection with this special order.
Calculate the
increase in company profits if ABC Company accepts the special order
.
=
8.75
=
9.75
$1,500

Question 8
Bowen Company makes two products from a joint production process. Each product may be
sold at the split-off point or processed further. Information concerning these products
appears below:
Product X
Product Y
Allocated joint costs
....................
$25,000
$18,000
Sales value after further processing
.....
$47,000
$41,000
Sales value at the split-off point
.......
$28,000
$23,000
Additional processing costs
..............
$16,000
$17,000
Assume Bowen Company makes all the correct sell or process further decisions.
Calculate the
net income
reported by Bowen Company last year.

Question 9
Veritime Assurance Company provides both automobile and life insurance to its
customers. Income statements for the two products for the most recent year appear
below:
Automobile Insurance
Life Insurance
Sales revenue
.................
$4,000,000
$12,000,000
Variable costs
.................
3,510,000
9,600,000
Contribution margin
............
490,000
2,400,000
Fixed costs
....................
600,000
700,000
Net income/loss
................
<110,000>
1,700,000
The president of the company is considering dropping the automobile insurance product
line. However, some policyholders prefer having their auto and life insurance with the
same company, so if automobile insurance is dropped, sales of life insurance will drop
by 10%. Assume that $100,000 of the fixed costs assigned to automobile insurance are
unavoidable and thus will continue whether or not automobile insurance is dropped.
Calculate the