1. Black Productions has three models: D, E, and F. The following information is available:

	Model D	Model E	Model F
sales revenue	$65,000	$33,000	$24,000
Variable expends	$32,000	$13,000	$14,000
Contribution margin	$33,000	$20,000	$10,000
Fixed costs	$16,000	$16,000	$16,000
Operating profit (loss)	$17,000	$4,000	$(6,000)

Black Productions is thinking of discontinuing the Model F because it is reporting an operating loss. All fixed costs are unavoidable. Black Productions discontinues model F and rents the space previously used to produce product F for $15,000 per year, what effect will this have on operating income?

2. Sky High Seats makes airplane seats. The company has the capacity to produce 100,000 seats per year, but currently produces and sells 75,000 seats per year. The following information relates to the current production of seats:

Sale Price per Unit	$400
Variable costs per unit:
Manufacturing	$220
marketing and administrative	$50
Total fixed costs:
Manufacturing	$750,000
marketing and administrative	$200,000

If a special sales order for 2,500 seats is accepted at a price of $320 per unit, fixed costs increase by $5,000, and variable marketing and administrative costs for that order are $25 per unit, what would operating income be? affected? (NOTE: Assume that regular sales are not affected by the special order.)

Answer rating: 100% (QA)

Discontinuing Model F and renting the space previously used to produce it for 15000 per year will ha... View the full answer