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Question $5$

Storeby Company has multiple business units. Unit $1$ has the following information:

Sales revenue: $$200,000$

Variable expenses: $140,000$

Fixed expenses: $100,000$

Fixed expenses, which are mostly represented by shared capacity costs $($e$.$g$.,$ rent, depreciation, etc. for the factory as a whole$),$ are allocated evenly to business units.

Harry, a manager within Storeby Company, is wondering whether Storeby Company should drop Unit $1.$

Which of the following statements are true? $($Check all that apply.$)$

If the fixed expenses are unavoidable, they are relevant.

The $$140,000$ in variable expenses is relevant.

If the fixed expenses are avoidable, they are relevant.

The $$200,000$ in sales revenue is relevant.

Status: $[$object Object$]$

$1$ point

Lillian Corporation currently makes a key input into its main product. Bernard, a manager within Lillian, is arguing that the organization should outsource production of this input and buy it from a third$-$party supplier.

Currently, the per$-$unit manufacturing costs are $$12$ in materials, $$18$ in labor, $$8$ in variable manufacturing overhead, and $$12$ in fixed costs per unit. The fixed costs are allocated from the total of fixed costs generated by the entire factory.

Bernard$$s third$-$party supplier would charge Lillian $$54$ per unit, and could sell to Lillian the entire $1,000$ units Lillian needs each year.

Also, if Bernard$$s plan is implemented, it can use the capacity currently being used to produce an input to generate additional profit of $$14,000.$

Assuming Lillian is adopting a financial perspective, which of the following is true?

Lillian should not follow Bernard$$s plan, because doing so will decrease profits by $$16,000.$

Lillian should not follow Bernard$$s plan, because doing so will decrease profits by $$2,000.$

Lillian should not follow Bernard$$s plan, because doing so will decrease profits by $$4,000.$

Lillian should follow Bernard$$s plan, because doing so will increase profits by $$10,000.$

Status: $[$object Object$]$

$1$ point

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