Problem #1 - constraint of a resource. Below is information for three products of Vandelay Industries which is having trouble acquiring the rare raw material it needs to make its products. In the month of January, Vandelay estimates it can only acquire 5,000 ounces of the material. Each ounce of the raw material costs $100. Below are the per unit selling price and costs:

Each ounce of the raw material costs $100. Below are the per unit selling price and costs:

Basic Premium Beyond Belief

Selling Price $400 $750 $1,250

Less: Variable Costs

Direct Material $200 $400 $700

Direct Labor $50 $70 $140

Variable Overhead $100 $150 $190

Assuming Vandelay can sell every unit it produces, if Vandelay wishes to maximize its income, which product should be the only one it produces ?

Group of answer choices

a) Premium

b) Basic

c) Beyond Belief

d) No answer text provided.

Problem #2 - special order. Your per unit cost structure for "Happiness" is shown below. A new company which has never purchased from you before approaches you and offers to buy 10,000 units of "Happiness" for $24.50/unit. You would need to spend an additional $20,000 to rent a machine to fulfill the order but otherwise you have the capacity.

Selling Price$39.95

Direct Material$11.20

Direct Labor$8.45

Variable Overhead$3.65 (does not include the $20,000 rent for machine)

Fixed Overhead$5.55 (does not include the $20,000 rent for machine)

Without considering anything but the numbers, should you accept the offer if you wish to maximize your profits in the short-term?

a) No, because net income will decrease by $8,000

b) No, because net income will decrease by $43,500

c) No, because net income will decrease by $63,500

d) Yes, because net income will increase by $12,000

Problem #3 - split off cost decisions. Once again back at Vandelay Industries which makes latex products. You have spent $60,000 on your latest production run of 6,000 gallons of liquid latex when a customer offers you $84,000 to buy the 6,000 gallons. Normally at this point of production you split off latex and make your three products with further processing - Basic, Special and Sky is the Limit.

• You normally use 3,000 gallons for one batch of Basic and additional processing costs are $7,000 per batch and you sell Basic for $17/gallon.
• You normally use 2,000 gallons for one batch of Special which requires additional processing costs of $10,500 per batch and you sell Special for $21/gallon
• You normally use 1,000 gallons for one batch of Sky is the Limit which requires additional processing costs of $12,000 per batch and you normally sell Sky is the Limit for $27/gallon.

Your customer has indicated it is an "all or nothing" offer, you must accept and sell all 6,000 gallons or reject. What should you do if you are wanting to maximize your profits, accept their offer or continue to process?

Group of answer choices

a) Reject because you would have total profit of $30,500

b) Accept because you would have a total profit of $84,000

c) Accept because you would have a total profit of $22,000

d) Reject because you would have total profit of $90,500

Problem #4 - using the same information as Question #3, would your answer be different if it was not an "all or nothing" offer? In other words, what if the customer would pay you $14 per gallon for as much as you would be willing to sell them? You could sell them some or most and keep enough to produce one or two of your products. If you choose to produce only one product, choose the one which will give you the highest net income.

You have spent $60,000 on your latest production run of 6,000 gallons of liquid latex when a customer offers you $84,000 to buy the 6,000 gallons. Normally at this point of production you split off latex and make your three products with further processing - Basic, Special and Sky is the Limit.

• You normally use 3,000 gallons for one batch of Basic and additional processing costs are $7,000 per batch and you sell Basic for $17/gallon.
• You normally use 2,000 gallons for one batch of Special which requires additional processing costs of $10,500 per batch and you sell Special for $21/gallon
• You normally use 1,000 gallons for one batch of Sky is the Limit which requires additional processing costs of $12,000 per batch and you normally sell Sky is the Limit for $27/gallon.

Which option will maximize your net income ?

a) Produce Special only

b) Produce Basic only

c) Produce Sky is the Limit only

d) Accept the other company's offer

Problem #5 Net Present Value, you the tables at the end of Chapter 16 - You are thinking about buying a new machine which will cost you $75,000. It will last for seven years and save you $18,000 a year each year in operating costs. If your required rate of return is 12%, does the new machine pay for itself and should you buy it ?

Group of answer choices

a) Yes, because the net present value of the machine is $7,148

b) Yes because the net present value is $51,000

c) No, because the net present value is negative $57,000

d) There is not enough information to answer the question

Problem #6 - use the Tables at the end of Chapter 16, how much money will you have at the end of 20 years if you save $4,000 every year for those twenty years and earn 12% every year?

Problem #7 - Use the tables at the end of Chapter 16. Let's say you have just retired and you have $1 million saved. Your desire is to die broke. You will draw out $121,930.25 each year to live on. Assuming you earn 10%a year on any money you haven't drawn out, at the end of which year will you run out of money ? (and that's when you should die). Give your answer as a number such as 11 and not 11th