Q1:

Direct materials	$10
Direct labor	7
Variable manufacturing overhead	1
Fixed manufacturing overhead	8
Unit product cost	$26

Tish Corporation produces a part used in the manufacture of one of its products. The unit product cost is $26, computed as follows:

An outside supplier has offered to provide the annual requirement of 5,000 of the parts for only $21 each. The company estimates that 75% of the fixed manufacturing overhead cost above could be eliminated if the parts are purchased from the outside supplier. Assume that direct labor is an avoidable cost in this decision.

Should Tish Corporation make or buy? Show your calculation!

Q2:

Gwinnett Barbecue Sauce Corporation manufactures a specialty barbecue sauce. Gwinnett has the capacity to manufacture and sell 10,000 cases of sauce each year but is currently only manufacturing and selling 9,000. The following costs relate to annual operations at 9,000 cases:

	Total Cost
Variable manufacturing cost	$126,000
Fixed manufacturing cost	$45,000
Variable selling and administrative cost	$18,000
Fixed selling and administrative cost	$27,000

Gwinnett normally sells its sauce for $30 per case. A local school district is interested in purchasing Gwinnett's excess capacity of 1,000 cases of sauce but only if they can get the sauce for $15 per case. This special order would not affect regular sales or total fixed costs or variable costs per unit.

Should Gwinnett accept this special order? Show your calculation!

Q3:

The management of Bayside Company is considering whether one of the departments in its retail

stores should be eliminated. The contribution margin in the department is $150,000 per year.

Fixed expenses allocated to the department are $130,000 per year. It is estimated that $120,000

of these fixed expenses will be eliminated if the department is discontinued.

Part (a)

Which costs are irrelevant to this decision?

The common fixed costs of $10,000 (or $130,000 - $120,000) are irrelevant to this decision.

Part (b)

If the department is eliminated, what will be the impact on the companys overall net operating income?