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Han Products manufactures 29,000 units of part S-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is:

Direct materials	$	5.60
Direct labor		7.00
Variable manufacturing overhead		2.90
Fixed manufacturing overhead		15.00
Total cost per part	$	30.50

An outside supplier has offered to sell 29,000 units of part S-6 each year to Han Products for $48.00 per part. If Han Products accepts this offer, the facilities now being used to manufacture part S-6 could be rented to another company at an annual rental of $796,500. However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier

Required:

a.	Calculate the per unit and total relevant cost for buying and making the product? (Round your Per Unit answers to 2 decimal places.)
	Per Unit Differential Costs 29,000 Units Make Buy Make Buy Cost of purchasing Cost of making: Direct materials Direct labor Variable overhead Fixed overhead Total cost

b.	How much will profits increase or decrease if the outside suppliers offer is accepted?

Profit would _____ by _____

Benoit Company produces three products, A, B, and C. Data concerning the three products follow (per unit):

	Product
	A				B				C
Selling price	$	100			$	80			$	90
Variable expenses:
Direct materials		30.00				24.00				6.30
Other variable expenses		30.00				36.00				56.70
Total variable expenses		60.00				60.00				63.00
Contribution margin	$	40.00			$	20.00			$	27.00
Contribution margin ratio		40	%			25	%			30	%

Demand for the companys products is very strong, with far more orders each month than the company can produce with the available raw materials. The same material is used in each product. The material costs $3 per pound with a maximum of 4,800 pounds available each month.

Required:

a.	Compute contribution margin per pound of materials used. (Round your intermediate calculations and final answers to 2 decimal places.)

	Contribution margin per pound
Product A
Product B
Product C

b.	Which orders would you advise the company to accept first, those for A, for B, or for C? Which orders second? Third?

Product A
Product B
Product C

Bed & Bath, a retailing company, has two departments, Hardware and Linens. The companys most recent monthly contribution format income statement follows:

				Department
	Total			Hardware			Linens
Sales	$	4,150,000		$	3,010,000		$	1,140,000
Variable expenses		1,242,000			830,000			412,000
Contribution margin		2,908,000			2,180,000			728,000
Fixed expenses		2,380,000			1,500,000			880,000
Net operating income (loss)	$	528,000		$	680,000		$	(152,000	)

A study indicates that $374,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 14% decrease in the sales of the Hardware Department.

Required:

If the Linens Department is dropped, what will be the effect on the net operating income of the company as a whole?

_____ in net operating income _____

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