Horton and Associates Produces Two Products Named BigBlast and LittleBlast

question 112

Multiple Choice

Horton and Associates produces two products named BigBlast and LittleBlast. Last month 4,000 units of BigBlast and 1,000 units of LittleBlast were produced and sold. Following are average prices and costs for last month: $\begin{array}{lrr}&\text { BiqBlast }&\text { LittleBlast }\\\text { Selling price } & \$ 100 & \$ 200 \\\text { Direct materials } & (25) & (75) \\\text { Direct labour } & (15) & (35) \\\text { Variable overhead } & (5) & (30) \\\text { Product line fixed costs } & (10) & (40) \\\text { Corporate fixed costs } & (25) & (25) \\\text { Average margin per unit }&\$20&\$5\end{array}$ The production lines for both products are highly automated, so large changes in production cause very little change in total direct labour costs. Workers who are classified as direct labour monitor the production line and are permanent employees who regularly work 40 hours per week. All costs other than "corporate fixed costs" listed under each product line could be avoided if the product line were dropped.
Using only the information provided above, Horton could make several types of decisions. Possible decisions include:
I. Keep or drop
II. Product emphasis
III. Special order
IV. Constrained resources

• A) I and II only
• B) I and III only
• C) I, II, and IV only
• D) III and IV only

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