$1,500

Question 8
Veritime Assurance Company provides both automobile and life insurance to its
customers. Income statements for the two products for the most recent year appear
below:
Automobile Insurance
Life Insurance
Sales revenue
.................
$4,000,000
$12,000,000
Variable costs
.................
3,510,000
9,600,000
Contribution margin
............
490,000
2,400,000
Fixed costs
....................
600,000
700,000
Net income/loss
................
<110,000>
1,700,000
The president of the company is considering dropping the automobile insurance product
line. However, some policyholders prefer having their auto and life insurance with the
same company, so if automobile insurance is dropped, sales of life insurance will drop
by 10%. Assume that $100,000 of the fixed costs assigned to automobile insurance are
unavoidable and thus will continue whether or not automobile insurance is dropped.
Calculate the
decrease in company profits if the automobile insurance product line is
dropped
.
10%)

Question 11
XYZ Company produces two products, A and B. For the coming period, 140,000 machine
hours and 200,000 direct labor hours are available. Information on the two products
appears below:
Product A
Product B
selling price per unit
...........
$6.00
$8.00
variable costs per unit
..........
$4.00
$5.00
machine hours per unit
...........
2.00
5.00
direct labor hours per unit
......
6.00
4.00
Calculate the
number of units of Product B that should be produced in order to maximize
net income
.
3B
0
20,000

Using a graph, you can determine the possible corner points to be:
$66,666
$84,000
$100,000
=
$0