Question

Oriole Company can sell all the units it can produce of either Plain or Fancy but not both. Plain has a unit contribution margin of $66 and takes two machine hours to make and Fancy has a unit contribution margin of $63 and takes three machine hours to make. There are 2400 machine hours available to manufacture a product. What should Oriole do?

A.Make Plain which creates $12 more profit per machine hour than Fancy does.

B.The same total profits exist regardless of which product is made.

C. Make Plain because more units can be made and sold than Fancy.

D. Make Fancy which creates $36 more profit per unit than Plain does.

North Division has the following information:

Sales	$1150000
Variable expenses	635000
Fixed expenses	620000

If this division is eliminated, the fixed expenses will be allocated to the company’s other divisions. What is the incremental effect on net income if the division is dropped?

A. $105000 increase

B. $515000 decrease

C.$620000 decrease

D. $530000 increase

Answer 1

Answer 1

OPTION A i.e. Make Plain as it creates $12 more profit.

Explanation:

	Plain	Fancy
Contribution	$      66	$      63
Machine hours per unit	2	3
Contribution per hour	$ 33.00	$ 21.00
Rank	I	II

Difference

$ 12.00

Answer 2

B. $515000 decrease

Explanation:

Sales	$ 1,150,000
Less: variable Cost	$    635,000
Contribution	$    515,000
Less: fixed Cost	$    620,000
Net Income	$ (105,000)

If the product is dropped, the contribution of $ 515,000 is lost.

In case of any doubt, please comment.