Question 1 — Relevant/irrelevant for the outsource decision (1,000 units)

Per-unit current manufacturing costs:

• Materials = $20 (variable)

• Labor = $25 (variable)

• Variable manufacturing overhead = $20 (variable)

• Allocated fixed = $10 (allocated from factory totals, likely unavoidable)
  Total variable per unit = $20 + $25 + $20 = $65.
  Third-party price = $70 per unit.
  Additional profit from alternative use of capacity = $10,000.

Which statements are true?

• ❌ The variable manufacturing costs are irrelevant.
  Explanation: False. Variable manufacturing costs ($65/unit) are avoidable if you outsource, so they are relevant.

• ✅ The third-party’s price of $70 is relevant.
  Explanation: True — the purchase price is a future cash outflow and is relevant to the decision.

• ❌ The additional profit of $10,000 from the alternative use of current capacity is irrelevant.
  Explanation: False — the opportunity benefit from freed capacity (the $10,000) is relevant and should be included.

• ✅ The $10 fixed costs per unit is irrelevant because the costs are allocated, and likely unavoidable.
  Explanation: True — allocated fixed costs that won’t be avoided by outsourcing are irrelevant (they’re not incremental).

Net-benefit check (illustration):
Avoidable cost if make = $65 × 1,000 = $65,000 saved by outsourcing.
Cost to buy = $70 × 1,000 = $70,000 paid.
Net incremental cost of buying = $5,000 (i.e., buying costs $5k more).
Add alternative capacity profit $10,000 → overall increase in profit = $10,000 − $5,000 = $5,000 (positive).
(That number is for your reference; Q1 only asked about relevancy statements.)

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Question 2 — Same data, but alternative-use profit = $11,000 — which multiple choice is true?

Recompute with alternative profit = $11,000.

Relevant avoidable cost = $65 × 1,000 = $65,000 saved by not producing.
Cost to buy = $70 × 1,000 = $70,000 → net extra cost = $5,000.
Opportunity benefit = $11,000.
Overall effect = $11,000 − $5,000 = $6,000 increase in profit if Lillian outsources.

Which of the provided choices is true?

• ❌ Lillian should not follow Bernard’s plan, because doing so will decrease profits by $9,000.

• ❌ Lillian should not follow Bernard’s plan, because doing so will decrease profits by $1,000.

• ❌ Lillian should follow Bernard’s plan, because doing so will increase profits by $2,000.

• ❌ Lillian should follow Bernard’s plan, because doing so will increase profits by $12,000.

Explanation & note: None of the four choices matches the correct arithmetic result. The correct conclusion (financial perspective, using avoidable costs only) is: Lillian should follow Bernard’s plan, because it increases profits by $6,000 (calculation shown above). The four provided multiple-choice answers are all incorrect given the numbers.

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Question 3 — Joseph Company special order (2,500 units at $16), excess capacity

Per-unit: variable costs = $11, fixed = $4, regular price $24. Special order price = $16. Excess capacity (so no opportunity cost of using capacity).

Relevant incremental effect per unit = special price − variable cost = $16 − $11 = $5 contribution per unit.

So:

• ❌ Joseph is indifferent because the variable costs are the same regardless.
  Explanation: Not correct — variable costs matter; the incremental price vs variable cost produces contribution.

• ❌ Joseph should accept the offer, because each unit sold to Katherine increases profits by $3.

• ❌ Joseph should accept the offer, because each unit sold to Katherine increases profits by $6.

• ❌ Joseph should decline the offer, because each unit sold to Katherine decreases profits by $4.

Correct statement (not listed): Joseph should accept the offer, because each unit increases profit by $5 (i.e., $16 − $11 = $5).
Note: None of the four choices in the question matches the correct $5 figure.

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Question 4 — Assemble vs sell unassembled chair

Unassembled sells for $22. Product costs (for unassembled) = $6 per chair. Assembled market price = $28. Additional assembly cost = $5.

We compare incremental revenue and incremental cost of assembling instead of selling unassembled:

• Incremental revenue = $28 − $22 = $6

• Incremental cost = additional assembly = $5

• Incremental profit = $6 − $5 = $1 per chair (positive)

Which option is correct?

• ❌ Jonathan will not sell the assembled chair because product costs are $11 per chair.
  (This mixes costs incorrectly: total product cost if assembled might be 6+5=11 but decision uses incremental comparison, not just total product cost.)

• ❌ Jonathan will not sell the assembled chair because profits decrease by $5 per chair.

• ✅ Jonathan will sell the assembled chair because the incremental revenues are greater than the incremental costs by $1.

• ❌ Jonathan will sell the assembled chair because revenues are higher by $6 per chair.
  (This ignores the additional $5 cost.)

Answer: ✅ the incremental $1 profit makes assembling the better choice.

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Question 5 — Opal Company, drop Unit 1 (table not provided)

You gave narrative: fixed expenses are allocated evenly to business units and mostly shared (rent, depreciation). But the numeric table for Unit 1 (revenues, variable costs, avoidable fixed costs, allocated fixed etc.) is not provided, so we cannot compute the actual net effect. I’ll tell you how to evaluate and then apply that logic to each choice.

General rule (financial perspective) for dropping a unit:

• Compute avoidable contribution = (Revenue − Variable costs) that would be lost if dropped.

• Subtract avoidable fixed costs (the fixed costs that would actually disappear if the unit is dropped).

• If net effect is positive (i.e., dropping increases profit), drop; if negative, keep.

Now evaluate each statement conceptually:

• ❌ Harry will want to drop Unit 1, because the net effect will be a $40,000 increase to profits.
  Explanation: Cannot determine — we need the numbers. This might be true if the calculation yields +$40,000, but we don’t have the data.

• ✅/❌ Harry will drop Unit 1 if 65% of the fixed costs are avoidable.
  Explanation: This is potentially true in the right numeric context — whether 65% avoidable causes dropping to be favorable depends on Unit 1’s contribution margin and the magnitude of fixed costs. So we cannot mark this true or false without numbers. (If this statement is meant as a general rule — “he will drop if enough fixed costs are avoidable so that net effect is positive” — that conceptual statement is true. But as a numeric claim specifically about 65% = causes drop, we need the data.)

• ❌ Harry will not drop Unit 1, because Unit 1 is subsidizing some of Opal Company’s fixed costs.
  Explanation: Cannot determine — subsidization could be true or false depending on numbers. If Unit 1’s contribution > avoidable fixed costs then it subsidizes shared costs; that argues for not dropping. But we don’t have the numbers, so we cannot assert this universally.

• ❌ Harry will not drop Unit 1, because the net effect will be a $60,000 decrease in profits.
  Explanation: Cannot determine — that is a numeric claim that requires the table.

Bottom line for Q5: I cannot definitively select the correct boxed answers without the Unit 1 numeric table (revenues, variable costs, allocated fixed, avoidable fixed). If you paste the Unit 1 numbers I will compute the avoidable contribution, avoidable fixed costs, and the net effect (and then will mark the correct choice(s)).

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🧾 Summary table (compact)

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