D contribution margin ratio of 68 and operating

d. contribution margin ratio of 68% and operating income of $7,050,000.

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80. CSO: 2C2g LOS: 2C2d
Cervine Corporation makes two types of motors for use in various products. Operating data and unit
cost information for its products are presented below.
Product A Product B
Annual unit capacity 10,000 20,000
Annual unit demand 10,000 20,000
Selling price $100 $80
Variable manufacturing cost 53 45
Fixed manufacturing cost 10 10
Variable selling & administrative 10 11
Fixed selling & administrative 5 4
Fixed other administrative 2 0
Unit operating profit $ 20 $10
Machine hours per unit 2.0 1.5
Cervine has 40,000 productive machine hours available. The relevant contribution margins, per
machine hour for each product, to be utilized in making a decision on product priorities for the
coming year, are
Product A Product B
a. $17.00 $14.00.
b. $18.50 $16.00.
c. $20.00 $10.00.
d. $37.00 $24.00.

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81. CSO: 2C2g LOS: 2C2n
Lark Industries accepted a contract to provide 30,000 units of Product A and 20,000 units of Product
B. Lark’s staff developed the following information with regard to meeting this contract.
Product A Product B Total
Selling Price $75 $125
Variable costs $30 $48
Fixed overhead $1,600,000
Machine hours required 3 5
Machine hours available 160,000
Cost if outsourced $45 $60
Lark’s operations manager has identified the following alternatives. Which alternative should be
recommended to Lark’s management?
a. Make 30,000 units of Product A, utilize the remaining capacity to make Product B, and
outsource the remainder.
b. Make 25,000 units of Product A, utilize the remaining capacity to make Product B, and
outsource the remainder.
c. Make 20,000 units of Product A, utilize the remaining capacity to make Product B, and
outsource the remainder.
d. Rent additional capacity of 30,000 machine hours which will increase fixed costs by $150,000.
82. CSO: 2C3a LOS: 2C3d
Which one of the following would cause the demand curve for bagels to shift to the left?
a. A decrease in the cost of muffins.
b. An increase in the population.
c. A decrease in the price of bagels.
d. An increase in the supply of bagels.
83. CSO: 2C3a LOS: 2C3d
Which one of the following would cause the demand curve for prepared meals sold in supermarkets
to shift to the right?
a. An increase in the price of prepared meals.
b. An increase in consumer income.
c. A decrease in the price of restaurant meals.
d. An increase in the supply of prepared meals.

310
84. CSO: 2C3a LOS: 2C3n
If the demand for a product is elastic, a price increase will result in
a. no change in total revenue.
b. an increase in total revenue.
c. a decrease in total revenue.
d. an indeterminate change in revenue.
85. CSO: 2C3a LOS: 2C3b
The advantages of incorporating full product costs in pricing decisions include all the following
except
a. ease in identifying unit fixed costs with individual products.
b. full product cost recovery.
c. the promotion of price stability.