2024 – 1 Assume that discontinuing the Tam product would result in a 120 000 increase

1. Assume that discontinuing the Tam product would result in a $120,000 increase in the contribution margin of other product lines. How many Tams would have to be sold next year for the company to be as well off as if it just dropped the line and enjoyed the increase in contribution margin from other products? 

A. 5,000 units 

B. 6,000 units 

C. 6,500 units 

D. 7,000 units 

E. None of the above 

 

2. Cybil Baunt just inherited a 1958 Chevy Impala from her late Aunt Joop. Aunt Joop purchased the car 25 years ago for $5,000. Cybil is either going to sell the car for $2,000 or have it restored and sell it for $16,000. The restoration will cost $10,000. Cybil would be better off by: 

A. $4,000 to have the vehicle restored 

B. $6,000 to have the vehicle restored 

C. $9,000 to have the vehicle restored 

D. $11,000 to have the vehicle restored 

E. None of the above 

 

3. Assume that discontinuing the manufacture and sale of Tams will have no effect on the sale of other product lines. If the company discontinues the Tam product line, the change in annual operating income (or loss) should be: 

A. $55,000 decrease 

B. $65,000 decrease 

C. $90,000 decrease 

D. $70,000 increase 

E. None of the above 

 

4. Two products, TD and IB, emerge from a joint process. Product TD has been allocated $31,200 of the total joint costs of $48,000. A total of 5,000 units of product TD are produced from the joint process. Product TD can be sold at the split-off point for $24 per unit, or it can be processed further for an additional total cost of $15,000 and then sold for $26 per unit. If product TD is processed further and sold, what would be the effect on the overall profit of the company compared with sale in its unprocessed form directly after the split-off point? 

A. $5,000 less profit 

B. $115,000 more profit 

C. $36,200 less profit 

D. $26,200 more profit 

E. None of the above