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TP 1.

LO 3.1Mariana Manufacturing and Bellow Brothers compete in the same industry and in all respects their products are virtually identical. However, most of Mariana’s costs are fixed while Bellow’s costs are primarily variable. If sales increase for both companies, which will realize the greatest increase in profits? Why?

TP 2.

LO 3.2Roald is the sales manager for a small regional manufacturing firm you own. You have asked him to put together a plan for expanding into nearby markets. You know that Roald’s previous job had him working closely with many of your competitors in this new market, and you believe he will be able to facilitate the company expansion. He is to prepare a presentation to you and your partners outlining his strategy for taking the company into this expanded market. The day before the presentation, Roald comes to you and explains that he will not be making a presentation on market expansion but instead wants to discuss several ways he believes the company can reduce both fixed and variable costs. Why would Roald want to focus on reducing costs rather than on expanding into a new market?

TP 3.

LO 3.3As a manager, you have to choose between two options for new production equipment. Machine A will increase fixed costs by a substantial margin but will produce greater sales volume at the current price. Machine B will only slightly increase fixed costs but will produce considerable savings on variable cost per unit. No additional sales are anticipated if Machine B is selected. What are the relative merits of both machines, and how could you go about analyzing which machine is the better investment for the company in terms of both net operating income and break-even?

TP 4.

LO 3.5Couture’s Creations is considering offering Joe, an hourly employee, the opportunity to become a salaried employee. Why is this a good idea for Couture’s Creations? Is this a good idea for Joe? What if Couture’s Creations entices Joe to agree to the change by offering him a salaried position with no risk of layoff during the winter lull? What if Joe agrees and Couture’s Creations lays him off anyway six months into the agreement?

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