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31. A study has been conducted to determine if Product A should be dropped. Sales of the product total $200,000 per year; variable expenses total $140,000 per year. Fixed expenses charged to the product total $90,000 per year. The company estimates that $40,000 of these fixed expenses will continue even if the product is dropped. These data indicate that if Product A is dropped, the company’s overall net operating income would: A. decrease by $20,000 per year B. increase by $20,000 per year C. decrease by $10,000 per year D. increase by $30,000 per year 32. The Kelsh Company has two divisions–North and South. The divisions have the following revenues and expenses: Management at Kelsh is pondering the elimination of North Division. If North Division were eliminated, its traceable fixed expenses could be avoided. The total common corporate expenses would be unaffected. Given these data, the elimination of North Division would result in an overall company net operating income of: A. $100,000 B. $150,000 C. $(140,000) D. $50,000 33. Power Systems Inc. manufactures jet engines for the United States armed forces on a cost-plus basis. The production cost of a particular jet engine is shown below: If production of this engine was discontinued, the production capacity would be idle, and the supervisor would be laid off. The depreciation referred to above is for special equipment that would have no resale value and that does not wear out through use. When asked to bid on the next contract for this engine, the minimum unit price that Power Systems should bid is: A. $408,000 B. $365,000 C. $397,000 D. $385,000 34. The management of Heider Corporation is considering dropping product J14V. Data from the company’s accounting system appear below: In the company’s accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $211,000 of the fixed manufacturing expenses and $172,000 of the fixed selling and administrative expenses are avoidable if product J14V is discontinued. What would be the effect on the company’s overall net operating income if product J14V were dropped? A. Overall net operating income would decrease by $55,000. B. Overall net operating income would increase by $160,000. C. Overall net operating income would increase by $55,000. D. Overall net operating income would decrease by $160,000. 35. Product R19N has been considered a drag on profits at Buzzeo Corporation for some time and management is considering discontinuing the product altogether. Data from the company’s accounting system appear below: In the company’s accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $49,000 of the fixed manufacturing expenses and $30,000 of the fixed selling and administrative expenses are avoidable if product R19N is discontinued. What would be the effect on the company’s overall net operating income if product R19N were dropped? A. Overall net operating income would decrease by $59,000. B. Overall net operating income would decrease by $22,000. C. Overall net operating income would increase by $59,000. D. Overall net operating income would increase by $22,000. 36. Lusk Company produces and sells 15,000 units of Product A each month. The selling price of Product A is $20 per unit, and variable expenses are $14 per unit. A study has been made concerning whether Product A should be discontinued. The study shows that $70,000 of the $100,000 in fixed expenses charged to Product A would continue even if the product was discontinued. These data indicate that if Product A is discontinued, the company’s overall net operating income would: A. decrease by $60,000 per month B. increase by $10,000 per month C. increase by $20,000 per month D. decrease by $20,000 per month 37. Peluso Company, a manufacturer of snowmobiles, is operating at 70% of plant capacity. Peluso’s plant manager is considering making the headlights now being purchased from an outside supplier for $11 each. The Peluso plant has idle equipment that could be used to manufacture the headlights. The design engineer estimates that each headlight requires $4 of direct materials, $3 of direct labor, and $6.00 of manufacturing overhead. Forty percent of the manufacturing overhead is a fixed cost that would be unaffected by this decision. A decision by Peluso Company to manufacture the headlights should result in a net gain (loss) for each headlight of: A. $(2.00) B. $1.60 C. $0.40 D. $2.80 38. Part I51 is used in one of Pries Corporation’s products. The company makes 18,000 units of this part each year. The company’s Accounting Department reports the following costs of producing the part at this level of activity: An outside supplier has offered to produce this part and sell it to the company for $15.80 each. If this offer is accepted, the supervisor’s salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier’s offer were accepted, only $26,000 of these allocated general overhead costs would be avoided. If management decides to buy part I51 from the outside supplier rather than to continue making the part, what would be the annual impact on the company’s overall net operating income? A. Net operating income would decline by $81,800 per year. B. Net operating income would decline by $55,800 per year. C. Net operating income would decline by $119,800 per year. D. Net operating income would decline by $29,800 per year. 39. Iwasaki Inc. is considering whether to continue to make a component or to buy it from an outside supplier. The company uses 13,000 of the components each year. The unit product cost of the component according to the company’s cost accounting system is given as follows: Assume that direct labor is a variable cost. Of the fixed manufacturing overhead, 30% is avoidable if the component were bought from the outside supplier. In addition, making the component uses 1 minute on the machine that is the company’s current constraint. If the component were bought, this machine time would be freed up for use on another product that requires 2 minutes on this machine and that has a contribution margin of $5.20 per unit. When deciding whether to make or buy the component, what cost of making the component should be compared to the price of buying the component? A. $22.40 B. $19.80 C. $17.28 D. $19.88 40. Part N29 is used by Farman Corporation to make one of its products. A total of 11,000 units of this part are produced and used every year. The company’s Accounting Department reports the following costs of producing the part at this level of activity: An outside supplier has offered to make the part and sell it to the company for $21.20 each. If this offer is accepted, the supervisor’s salary and all of the variable costs, including the direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the part were purchased instead of produced internally. In addition, the space used to make part N29 could be used to make more of one of the company’s other products, generating an additional segment margin of $29,000 per year for that product. What would be the impact on the company’s overall net operating income of buying part N29 from the outside supplier? A. Net operating income would decline by $38,900 per year. B. Net operating income would increase by $29,000 per year. C. Net operating income would decline by $32,600 per year. D. Net operating income would increase by $19,100 per year. 41. Fillip Corporation makes 4,000 units of part U13 each year. This part is used in one of the company’s products. The company’s Accounting Department reports the following costs of producing the part at this level of activity: An outside supplier has offered to make and sell the part to the company for $21.60 each. If this offer is accepted, the supervisor’s salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier’s offer were accepted, only $3,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part U13 would be used to make more of one of the company’s other products, generating an additional segment margin of $13,000 per year for that product. What would be the impact on the company’s overall net operating income of buying part U13 from the outside supplier? A. Net operating income would increase by $13,000 per year. B. Net operating income would decline by $42,600 per year. C. Net operating income would decline by $68,600 per year. D. Net operating income would increase by $9,200 per year. 42. Ethridge Corporation is presently making part H25 that is used in one of its products. A total of 9,000 units of this part are produced and used every year. The company’s Accounting Department reports the following costs of producing the part at this level of activity: An outside supplier has offered to make and sell the part to the company for $15.40 each. If this offer is accepted, the supervisor’s salary and all of the variable costs can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the part were purchased instead of produced internally. If management decides to buy part H25 from the outside supplier rather than to continue making the part, what would be the annual impact on the company’s overall net operating income? A. Net operating income would increase by $24,300 per year. B. Net operating income would decline by $24,300 per year. C. Net operating income would increase by $58,500 per year. D. Net operating income would decline by $58,500 per year. 43. Pitkin Company produces a part used in the manufacture of one of its products. The unit product cost of the part is $33, computed as follows: An outside supplier has offered to provide the annual requirement of 10,000 of the parts for only $27 each. The company estimates that 30% of the fixed manufacturing overhead costs above will continue if the parts are purchased from the outside supplier. Assume that direct labor is an avoidable cost in this decision. Based on these data, the per unit dollar advantage or disadvantage of purchasing the parts from the outside supplier would be: A. $3 advantage B. $1 advantage C. $1 disadvantage D. $4 disadvantage 44. A customer has requested that Inga Corporation fill a special order for 2,000 units of product K81 for $25.00 a unit. While the product would be modified slightly for the special order, product K81’s normal unit product cost is $19.90: Direct labor is a variable cost. The special order would have no effect on the company’s total fixed manufacturing overhead costs. The customer would like modifications made to product K81 that would increase the variable costs by $1.20 per unit and that would require an investment of $10,000 in special molds that would have no salvage value. This special order would have no effect on the company’s other sales. The company has ample spare capacity for producing the special order. If the special order is accepted, the company’s overall net operating income would increase (decrease) by: A. $13,000 B. $(9,700) C. $10,200 D. $(2,200) 45. Rojo Corporation has received a request for a special order of 8,000 units of product W68 for $27.20 each. Product W68’s unit product cost is $18.50, determined as follows: Direct labor is a variable cost. The special order would have no effect on the company’s total fixed manufacturing overhead costs. The customer would like modifications made to product W68 that would increase the variable costs by $7.90 per unit and that would require an investment of $31,000 in special molds that would have no salvage value. This special order would have no effect on the company’s other sales. The company has ample spare capacity for producing the special order. If the special order is accepted, the company’s overall net operating income would increase (decrease) by: A. $(4,400) B. $69,600 C. $30,600 D. $(24,600) 46. Ellis Television makes and sells portable televisions. Each television regularly sells for $210. The following cost data per television is based on a full capacity of 10,000 televisions produced each period. A special order has been received by Ellis for a sale of 2,000 televisions to an overseas customer. The only selling costs that would be incurred on this order would be $6 per television for shipping. Ellis is now selling 6,000 televisions through regular channels each period. What should be the minimum selling price per television in negotiating a price for this special order? A. $174 B. $168 C. $210 D. $180 47. An automated turning machine is the current constraint at Naik Corporation. Three products use this constrained resource. Data concerning those products appear below: Rank the products in order of their current profitability from most profitable to least profitable. In other words, rank the products in the order in which they should be emphasized. A. OP, KU, YY B. YY, OP, KU C. KU, YY, OP D. YY, KU, OP 48. Pappan Corporation makes three products that use compound W, the current constrained resource. Data concerning those products appear below: Rank the products in order of their current profitability from most profitable to least profitable. In other words, rank the products in the order in which they should be emphasized. A. RH, GY, QF B. GY, RH, QF C. QF, GY, RH D. RH, QF, GY 49. Consider the following production and cost data for two products, X and Y: The company has 15,000 machine hours available each period, and there is unlimited demand for each product. What is the largest possible total contribution margin that can be realized each period? A. $120,000 B. $125,000 C. $135,000 D. $150,000 50. The constraint at Mcglathery Corporation is time on a particular machine. The company makes three products that use this machine. Data concerning those products appear below: Assume that sufficient time is available on the constrained machine to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of the constrained resource? A. $75.26 per unit B. $38.94 per unit C. $11.80 per minute D. $15.20 per minute 51. Wright Company produces products I, J, and K from a single raw material input. Budgeted data for the next month follows: If the cost of the raw material input is $78,000, which of the products should be processed beyond the split-off point? A. Option A B. Option B C. Option C D. Option D 52. Two products, IF and RI, emerge from a joint process. Product IF has been allocated $25,300 of the total joint costs of $46,000. A total of 2,000 units of product IF are produced from the joint process. Product IF can be sold at the split-off point for $11 per unit, or it can be processed further for an additional total cost of $10,000 and then sold for $13 per unit. If product IF is processed further and sold, what would be the effect on the overall profit of the company compared with sale in its unprocessed form directly after the split-off point? A. $31,300 less profit B. $6,000 less profit C. $16,000 more profit D. $19,300 more profit 53. Coakley Beet Processors, Inc., processes sugar beets in batches. A batch of sugar beets costs $48 to buy from farmers and $10 to crush in the company’s plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $24 or processed further for $16 to make the end product industrial fiber that is sold for $36. The beet juice can be sold as is for $44 or processed further for $28 to make the end product refined sugar that is sold for $70. How much profit (loss) does the company make by processing the intermediate product beet juice into refined sugar rather than selling it as is? A. $(31) B. $(60) C. $(2) D. $(12) 54. Galluzzo Corporation processes sugar beets in batches. A batch of sugar beets costs $51 to buy from farmers and $14 to crush in the company’s plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $20 or processed further for $18 to make the end product industrial fiber that is sold for $45. The beet juice can be sold as is for $41 or processed further for $21 to make the end product refined sugar that is sold for $62. How much profit (loss) does the company make by processing one batch of sugar beets into the end products industrial fiber and refined sugar? A. $(104) B. $(4) C. $7 D. $3 55. Beilke Corporation processes sugar beets in batches that it purchases from farmers for $53 a batch. A batch of sugar beets costs $12 to crush in the company’s plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $20 or processed further for $10 to make the end product industrial fiber that is sold for $26. The beet juice can be sold as is for $30 or processed further for $29 to make the end product refined sugar that is sold for $79. Which of the intermediate products should be processed further? A. beet fiber should be processed into industrial fiber; beet juice should be processed into refined sugar B. beet fiber should NOT be processed into industrial fiber; beet juice should be processed into refined sugar C.beet fiber should NOT be processed into industrial fiber; beet juice should NOT be processed into refined sugar D. beet fiber should be processed into industrial fiber; beet juice should NOT be processed into refined sugar 56. Zollars Cane Products, Inc., processes sugar cane in batches. The company buys a batch of sugar cane from farmers for $70 which is then crushed in the company’s plant at a cost of $19. Two intermediate products, cane fiber and cane juice, emerge from the crushing process. The cane fiber can be sold as is for $21 or processed further for $13 to make the end product industrial fiber that is sold for $42. The cane juice can be sold as is for $44 or processed further for $26 to make the end product molasses that is sold for $88. How much profit (loss) does the company make by processing one batch of sugar cane into the end products industrial fiber and molasses? A. $26 B. $2 C. $(24) D. $(128) 57. Kempler Corporation processes sugar cane in batches. The company purchases a batch of sugar cane for $34 from farmers and then crushes the cane in the company’s plant at the cost of $15. Two intermediate products, cane fiber and cane juice, emerge from the crushing process. The cane fiber can be sold as is for $26 or processed further for $17 to make the end product industrial fiber that is sold for $41. The cane juice can be sold as is for $32 or processed further for $22 to make the end product molasses that is sold for $51. Which of the intermediate products should be processed further? A. Cane fiber should be processed into industrial fiber; Cane juice should be processed into molasses B.Cane fiber should NOT be processed into industrial fiber; Cane juice should NOT be processed into molasses C. Cane fiber should be processed into industrial fiber; Cane juice should NOT be processed into molasses D. Cane fiber should NOT be processed into industrial fiber; Cane juice should be processed into molasses Two alternatives, code-named X and Y, are under consideration at Afalava Corporation. Costs associated with the alternatives are listed below. 58. Are the materials costs and processing costs relevant in the choice between alternatives X and Y? (Ignore the equipment rental and occupancy costs in this question.) A. Only materials costs are relevant B. Only processing costs are relevant C. Both materials costs and processing costs are relevant D. Neither materials costs nor processing costs are relevant 59. What is the differential cost of Alternative Y over Alternative X, including all of the relevant costs? A. $103,000 B. $39,000 C. $142,000 D. $122,500 Zurasky Corporation is considering two alternatives: A and B. Costs associated with the alternatives are listed below: 60. Are the materials costs and processing costs relevant in the choice between alternatives A and B? (Ignore the equipment rental and occupancy costs in this question.) A. Neither materials costs nor processing costs are relevant B. Only processing costs are relevant C. Only materials costs are relevant D. Both materials costs and processing costs are relevant

31. A study has been conducted to determine if Product A should be dropped. Sales of the product total $200,000 per year; variable expenses total $140,000 per year. Fixed expenses charged to the product total $90,000 per year. The company estimates that $40,000 of these fixed expenses will continue even if the product is dropped. These data indicate that if Product A is dropped, the company’s overall net operating income would:

A. decrease by $20,000 per year

B. increase by $20,000 per year

C. decrease by $10,000 per year

D. increase by $30,000 per year

32. The Kelsh Company has two divisions–North and South. The divisions have the following revenues and expenses:

Management at Kelsh is pondering the elimination of North Division. If North Division were eliminated, its traceable fixed expenses could be avoided. The total common corporate expenses would be unaffected. Given these data, the elimination of North Division would result in an overall company net operating income of:

A. $100,000

B. $150,000

C. $(140,000)

D. $50,000

33. Power Systems Inc. manufactures jet engines for the United States armed forces on a cost-plus basis. The production cost of a particular jet engine is shown below:

If production of this engine was discontinued, the production capacity would be idle, and the supervisor would be laid off. The depreciation referred to above is for special equipment that would have no resale value and that does not wear out through use. When asked to bid on the next contract for this engine, the minimum unit price that Power Systems should bid is:

A. $408,000

B. $365,000

C. $397,000

D. $385,000

 

34. The management of Heider Corporation is considering dropping product J14V. Data from the company’s accounting system appear below:

In the company’s accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $211,000 of the fixed manufacturing expenses and $172,000 of the fixed selling and administrative expenses are avoidable if product J14V is discontinued. What would be the effect on the company’s overall net operating income if product J14V were dropped?

A. Overall net operating income would decrease by $55,000.

B. Overall net operating income would increase by $160,000.

C. Overall net operating income would increase by $55,000.

D. Overall net operating income would decrease by $160,000.

35. Product R19N has been considered a drag on profits at Buzzeo Corporation for some time and management is considering discontinuing the product altogether. Data from the company’s accounting system appear below:

In the company’s accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $49,000 of the fixed manufacturing expenses and $30,000 of the fixed selling and administrative expenses are avoidable if product R19N is discontinued. What would be the effect on the company’s overall net operating income if product R19N were dropped?

A. Overall net operating income would decrease by $59,000.

B. Overall net operating income would decrease by $22,000.

C. Overall net operating income would increase by $59,000.

D. Overall net operating income would increase by $22,000.

36. Lusk Company produces and sells 15,000 units of Product A each month. The selling price of Product

A is $20 per unit, and variable expenses are $14 per unit. A study has been made concerning whether Product A should be discontinued. The study shows that $70,000 of the $100,000 in fixed expenses charged to Product A would continue even if the product was discontinued. These data indicate that if Product A is discontinued, the company’s overall net operating income would:

A. decrease by $60,000 per month

B. increase by $10,000 per month

C. increase by $20,000 per month

D. decrease by $20,000 per month

37. Peluso Company, a manufacturer of snowmobiles, is operating at 70% of plant capacity. Peluso’s plant manager is considering making the headlights now being purchased from an outside supplier for $11 each. The Peluso plant has idle equipment that could be used to manufacture the headlights. The design engineer estimates that each headlight requires $4 of direct materials, $3 of direct labor, and $6.00 of manufacturing overhead. Forty percent of the manufacturing overhead is a fixed cost that would be unaffected by this decision. A decision by Peluso Company to manufacture the headlights should result in a net gain (loss) for each headlight of:

A. $(2.00)

B. $1.60

C. $0.40

D. $2.80

 

38. Part I51 is used in one of Pries Corporation’s products. The company makes 18,000 units of this part each year. The company’s Accounting Department reports the following costs of producing the part at this level of activity:

An outside supplier has offered to produce this part and sell it to the company for $15.80 each. If this offer is accepted, the supervisor’s salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier’s offer were accepted, only $26,000 of these allocated general overhead costs would be avoided.

If management decides to buy part I51 from the outside supplier rather than to continue making the part, what would be the annual impact on the company’s overall net operating income?

A. Net operating income would decline by $81,800 per year.

B. Net operating income would decline by $55,800 per year.

C. Net operating income would decline by $119,800 per year.

D. Net operating income would decline by $29,800 per year.

39. Iwasaki Inc. is considering whether to continue to make a component or to buy it from an outside supplier. The company uses 13,000 of the components each year. The unit product cost of the component according to the company’s cost accounting system is given as follows:

Assume that direct labor is a variable cost. Of the fixed manufacturing overhead, 30% is avoidable if the component were bought from the outside supplier. In addition, making the component uses 1 minute on the machine that is the company’s current constraint. If the component were bought, this machine time would be freed up for use on another product that requires 2 minutes on this machine and that has a contribution margin of $5.20 per unit.

When deciding whether to make or buy the component, what cost of making the component should be compared to the price of buying the component?

A. $22.40

B. $19.80

C. $17.28

D. $19.88

 

40. Part N29 is used by Farman Corporation to make one of its products. A total of 11,000 units of this part are produced and used every year. The company’s Accounting Department reports the following costs of producing the part at this level of activity:

An outside supplier has offered to make the part and sell it to the company for $21.20 each. If this offer is accepted, the supervisor’s salary and all of the variable costs, including the direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the part were purchased instead of produced internally. In addition, the space used to make part N29 could be used to make more of one of the company’s other products, generating an additional segment margin of $29,000 per year for that product. What would be the impact on the company’s overall net operating income of buying part N29 from the outside supplier?

A. Net operating income would decline by $38,900 per year.

B. Net operating income would increase by $29,000 per year.

C. Net operating income would decline by $32,600 per year.

D. Net operating income would increase by $19,100 per year.

41. Fillip Corporation makes 4,000 units of part U13 each year. This part is used in one of the company’s products. The company’s Accounting Department reports the following costs of producing the part at this level of activity:

An outside supplier has offered to make and sell the part to the company for $21.60 each. If this offer is accepted, the supervisor’s salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier’s offer were accepted, only $3,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part U13 would be used to make more of one of the company’s other products, generating an additional segment margin of $13,000 per year for that product.

What would be the impact on the company’s overall net operating income of buying part U13 from the outside supplier?

A. Net operating income would increase by $13,000 per year.

B. Net operating income would decline by $42,600 per year.

C. Net operating income would decline by $68,600 per year.

D. Net operating income would increase by $9,200 per year.

 

42. Ethridge Corporation is presently making part H25 that is used in one of its products. A total of 9,000 units of this part are produced and used every year. The company’s Accounting Department reports the following costs of producing the part at this level of activity:

An outside supplier has offered to make and sell the part to the company for $15.40 each. If this offer is accepted, the supervisor’s salary and all of the variable costs can be avoided. The special equipment

used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the part were purchased instead of produced internally. If management decides to buy part H25 from the outside supplier rather than to continue making the part, what would be the annual impact on the company’s overall net operating income?

A. Net operating income would increase by $24,300 per year.

B. Net operating income would decline by $24,300 per year.

C. Net operating income would increase by $58,500 per year.

D. Net operating income would decline by $58,500 per year.

43. Pitkin Company produces a part used in the manufacture of one of its products. The unit product cost of the part is $33, computed as follows:

An outside supplier has offered to provide the annual requirement of 10,000 of the parts for only $27 each. The company estimates that 30% of the fixed manufacturing overhead costs above will continue if the parts are purchased from the outside supplier. Assume that direct labor is an avoidable cost in this decision. Based on these data, the per unit dollar advantage or disadvantage of purchasing the parts from the outside supplier would be:

A. $3 advantage

B. $1 advantage

C. $1 disadvantage

D. $4 disadvantage

44. A customer has requested that Inga Corporation fill a special order for 2,000 units of product K81 for $25.00 a unit. While the product would be modified slightly for the special order, product K81’s normal unit product cost is $19.90:

Direct labor is a variable cost. The special order would have no effect on the company’s total fixed manufacturing overhead costs. The customer would like modifications made to product K81 that would increase the variable costs by $1.20 per unit and that would require an investment of $10,000 in special molds that would have no salvage value.

This special order would have no effect on the company’s other sales. The company has ample spare capacity for producing the special order. If the special order is accepted, the company’s overall net operating income would increase (decrease) by:

A. $13,000

B. $(9,700)

C. $10,200

D. $(2,200)

 

45. Rojo Corporation has received a request for a special order of 8,000 units of product W68 for $27.20 each. Product W68’s unit product cost is $18.50, determined as follows:

Direct labor is a variable cost. The special order would have no effect on the company’s total fixed manufacturing overhead costs. The customer would like modifications made to product W68 that would increase the variable costs by $7.90 per unit and that would require an investment of $31,000 in special molds that would have no salvage value.

This special order would have no effect on the company’s other sales. The company has ample spare capacity for producing the special order. If the special order is accepted, the company’s overall net operating income would increase (decrease) by:

A. $(4,400)

B. $69,600

C. $30,600

D. $(24,600)

46. Ellis Television makes and sells portable televisions. Each television regularly sells for $210. The following cost data per television is based on a full capacity of 10,000 televisions produced each period.

A special order has been received by Ellis for a sale of 2,000 televisions to an overseas customer. The only selling costs that would be incurred on this order would be $6 per television for shipping. Ellis is now selling 6,000 televisions through regular channels each period. What should be the minimum selling price per television in negotiating a price for this special order?

A. $174

B. $168

C. $210

D. $180

47. An automated turning machine is the current constraint at Naik Corporation. Three products use this constrained resource. Data concerning those products appear below:

Rank the products in order of their current profitability from most profitable to least profitable. In other words, rank the products in the order in which they should be emphasized.

A. OP, KU, YY

B. YY, OP, KU

C. KU, YY, OP

D. YY, KU, OP

 

48. Pappan Corporation makes three products that use compound W, the current constrained resource. Data concerning those products appear below:

Rank the products in order of their current profitability from most profitable to least profitable. In other words, rank the products in the order in which they should be emphasized.

A. RH, GY, QF

B. GY, RH, QF

C. QF, GY, RH

D. RH, QF, GY

49. Consider the following production and cost data for two products, X and Y:

The company has 15,000 machine hours available each period, and there is unlimited demand for each product. What is the largest possible total contribution margin that can be realized each period?

A. $120,000

B. $125,000

C. $135,000

D. $150,000

50. The constraint at Mcglathery Corporation is time on a particular machine. The company makes three products that use this machine. Data concerning those products appear below:

Assume that sufficient time is available on the constrained machine to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of the constrained resource?

A. $75.26 per unit

B. $38.94 per unit

C. $11.80 per minute

D. $15.20 per minute

51. Wright Company produces products I, J, and K from a single raw material input. Budgeted data for the next month follows:

If the cost of the raw material input is $78,000, which of the products should be processed beyond the split-off point?

A. Option A

B. Option B

C. Option C

D. Option D

 

52. Two products, IF and RI, emerge from a joint process. Product IF has been allocated $25,300 of the total joint costs of $46,000. A total of 2,000 units of product IF are produced from the joint process. Product IF can be sold at the split-off point for $11 per unit, or it can be processed further for an additional total cost of $10,000 and then sold for $13 per unit. If product IF is processed further and sold, what would be the effect on the overall profit of the company compared with sale in its unprocessed form directly after the split-off point?

A. $31,300 less profit

B. $6,000 less profit

C. $16,000 more profit

D. $19,300 more profit

53. Coakley Beet Processors, Inc., processes sugar beets in batches. A batch of sugar beets costs $48 to buy from farmers and $10 to crush in the company’s plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $24 or processed further for $16 to make the end product industrial fiber that is sold for $36. The beet juice can be sold as is for $44 or processed further for $28 to make the end product refined sugar that is sold for $70. How much profit (loss) does the company make by processing the intermediate product beet juice into refined sugar rather than selling it as is?

A. $(31)

B. $(60)

C. $(2)

D. $(12)

54. Galluzzo Corporation processes sugar beets in batches. A batch of sugar beets costs $51 to buy from farmers and $14 to crush in the company’s plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $20 or processed further for $18 to make the end product industrial fiber that is sold for $45. The beet juice can be sold as is for $41 or processed further for $21 to make the end product refined sugar that is sold for $62. How much profit (loss) does the company make by processing one batch of sugar beets into the end products industrial fiber and refined sugar?

A. $(104)

B. $(4)

C. $7

D. $3

55. Beilke Corporation processes sugar beets in batches that it purchases from farmers for $53 a batch. A batch of sugar beets costs $12 to crush in the company’s plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $20 or processed further for $10 to make the end product industrial fiber that is sold for $26. The beet juice can be sold as is for $30 or processed further for $29 to make the end product refined sugar that is sold for $79. Which of the intermediate products should be processed further?

A. beet fiber should be processed into industrial fiber; beet juice should be processed into refined sugar

B. beet fiber should NOT be processed into industrial fiber; beet juice should be processed into refined sugar

C.beet fiber should NOT be processed into industrial fiber; beet juice should NOT be processed into refined sugar

D. beet fiber should be processed into industrial fiber; beet juice should NOT be processed into refined sugar

 

56. Zollars Cane Products, Inc., processes sugar cane in batches. The company buys a batch of sugar cane from farmers for $70 which is then crushed in the company’s plant at a cost of $19. Two intermediate products, cane fiber and cane juice, emerge from the crushing process. The cane fiber can be sold as is for $21 or processed further for $13 to make the end product industrial fiber that is sold for $42. The cane juice can be sold as is for $44 or processed further for $26 to make the end product molasses that is sold for $88. How much profit (loss) does the company make by processing one batch of sugar cane into the end products industrial fiber and molasses?

A. $26

B. $2

C. $(24)

D. $(128)

57. Kempler Corporation processes sugar cane in batches. The company purchases a batch of sugar cane for $34 from farmers and then crushes the cane in the company’s plant at the cost of $15. Two intermediate products, cane fiber and cane juice, emerge from the crushing process. The cane fiber can be sold as is for $26 or processed further for $17 to make the end product industrial fiber that is sold for $41. The cane juice can be sold as is for $32 or processed further for $22 to make the end product molasses that is sold for $51. Which of the intermediate products should be processed further?

A. Cane fiber should be processed into industrial fiber; Cane juice should be processed into molasses

B.Cane fiber should NOT be processed into industrial fiber; Cane juice should NOT be processed into molasses

C. Cane fiber should be processed into industrial fiber; Cane juice should NOT be processed into molasses

D. Cane fiber should NOT be processed into industrial fiber; Cane juice should be processed into molasses

Two alternatives, code-named X and Y, are under consideration at Afalava Corporation. Costs associated with the alternatives are listed below.

58. Are the materials costs and processing costs relevant in the choice between alternatives X and Y? (Ignore the equipment rental and occupancy costs in this question.)

A. Only materials costs are relevant

B. Only processing costs are relevant

C. Both materials costs and processing costs are relevant

D. Neither materials costs nor processing costs are relevant

59. What is the differential cost of Alternative Y over Alternative X, including all of the relevant costs?

A. $103,000

B. $39,000

C. $142,000

D. $122,500

Zurasky Corporation is considering two alternatives: A and B. Costs associated with the alternatives are listed below:

 

60. Are the materials costs and processing costs relevant in the choice between alternatives A and B? (Ignore the equipment rental and occupancy costs in this question.)

A. Neither materials costs nor processing costs are relevant

B. Only processing costs are relevant

C. Only materials costs are relevant

D. Both materials costs and processing costs are relevant

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