A decision that focuses on whether a specially priced order should be accepted or rejected is what kind of decision?
Selected Answer:
d.
special-order
Information about three joint products follows:
A
B
C
Anticipated production
5,000 lbs.
1,000 lbs.
2,000 lbs.
Selling price/lb. at split-off
$10
$30
$16
Additional processing costs/lb. after split-off
(all variable)
$ 6
$12
$24
Selling price/lb. after further processing
$20
$40
$50
The cost of the joint process is $60,000. Which of the joint products should be sold at split-off?
Selected Answer:
b.
B
Moss Company charges cost plus 35%. What is the price of an item with cost equal to $65?
Selected Answer:
c.
$87.75
Connolly Company produces two types of lamps, classic and fancy, with unit contribution margins of $13 and $21, respectively. Each lamp must spend time on a special machine. The firm owns four machines that together provide 18,000 hours of machine time per year. The classic lamp requires 0.20 hours of machine time, the fancy lamp requires 0.50 hours of machine time. What is the contribution margin per hour of machine time for a classic lamp?
Elegance Bath Products, Inc. (EBP) makes a variety of ceramic sinks and tubs. EBP has just developed a line of sinks and tubs made from a mixture of glass and ceramic. The sinks sell for $150 each and have variable costs of $80. The tubs sell for $600 and have variable costs of $450. The glass and ceramic sinks and tubs require the use of specialized molding equipment. The specialized molding equipment has 4,050 hours of capacity per year. A sink uses an average of 2 hours of specialized molding equipment time; a tub uses an average of 5 hours of specialized molding equipment time. What is the contribution margin per hour of specialized molding time for tubs?
Selected Answer:
e.
$30.00
Reggie Corporation manufactures a single product with the following unit costs for 1,000 units:
Direct materials
$2,400
Direct labor
960
Overhead (30% variable)
1,800
Selling expenses (50% variable)
900
Administrative expenses (10% variable)
840
Total per unit
$6,900
Recently, a company approached Reggie Corporation about buying 100 units for $5,100 each. Currently, the models are sold to dealers for $7,800. Reggie Corporation's capacity is sufficient to produce the extra 100 units. No additional selling expenses would be incurred on the special order.
How much will income change if the special order is accepted?
Selected Answer:
c.
increase by $111,600
A decision that focuses on whether a specially priced order should be accepted or rejected is what kind of decision?
Selected Answer:
d.
special-order
Elegance Bath Products, Inc. (EBP) makes a variety of ceramic sinks and tubs. EBP has just developed a line of sinks and tubs made from a mixture of glass and ceramic. The sinks sell for $150 each and have variable costs of $80. The tubs sell for $600 and have variable costs of $450. The glass and ceramic sinks and tubs require the use of specialized molding equipment. The specialized molding equipment has 4,050 hours of capacity per year. A sink uses an average of 2 hours of specialized molding equipment time; a tub uses an average of 5 hours of specialized molding equipment time.
Assuming that specialized molding equipment time is the only constrained resource, and that EBP can sell as many tubs and sinks as it can produce, how many sinks should be sold?
Selected Answer:
b.
2,025
Fuller Company makes frames. A customer wants to place a special order for 600 frames in green with the company logo painted on the frame, to be priced at $40 each. Normally, Fuller would charge $90 per frame for this type of order. Fuller figures that wood and glass will cost $16 per frame, variable overhead (machining, electricity) is $4 per frame, direct labor is $12 per frame, and one setup will be required at $1,000 per setup. The set-up charge costs are 100% labor. Currently, the workers needed to set up for and make the frames are working at Fuller. Their wages will be paid whether or not the special order is accepted. Fuller's policy is to avoid layoffs to the extent possible. If Fuller accepts the special order, by how much will operating income increase or decrease?
Selected Answer:
c.
$12,000 increase
Piersall Company makes a variety of paper products. One product is 20 lb copier paper, packaged 5,000 sheets to a box. One box normally sells for $18. A large bank offered to purchase 3,000 boxes at $14 per box. Costs per box are as follows:
Direct materials
$8
Direct labor
3
Variable overhead
1
Fixed overhead
5
No variable marketing costs would be incurred on the order. The company is operating significantly below the maximum productive capacity. No fixed costs are avoidable.
Should Piersall accept the order?
Selected Answer:
a.
Yes, income will increase by $6,000
The following information relates to a product produced by Creamer Company:
Direct materials
$24
Direct labor
15
Variable overhead
30
Fixed overhead
18
Unit cost
$87
Fixed selling costs are $500,000 per year, and variable selling costs are $12 per unit sold. Although production capacity is 600,000 units per year, the company expects to produce only 400,000 units next year. The product normally sells for $120 each. A customer has offered to buy 60,000 units for $90 each.
If the firm produces the special order, the effect on income would be a
Selected Answer:
c.
$540,000 increase.
Manning Company uses a joint process to produce products W, X, Y, and Z. Each product may be sold at its split-off point or processed further. Additional processing costs of specific products are entirely variable. Joint processing costs for a single batch of joint products are $120,000. Other relevant data are as follows:
Sales Value
Additional
Sales Value of
Product
at Split-Off
Processing Costs
Final Product
W
$ 40,000
$ 60,000
$ 80,000
X
$ 12,000
$ 4,000
$ 20,000
Y
$ 20,000
$ 32,000
$120,000
Z
$ 28,000
$ 20,000
$ 32,000
$100,000
$116,000
$252,000
Which products should Manning process further?
Selected Answer:
c.
Y and X
Miller Company produces speakers for home stereo units. The speakers are sold to retail stores for $30. Manufacturing and other costs are as follows:
Variable costs per unit:
Fixed costs per month:
Direct materials
$ 9.00
Factory overhead
$120,000
Direct labor
4.50
Selling and admin.
60,000
Factory overhead
3.00
Total
$180,000
Distribution
1.50
Total
$18.00
The variable distribution costs are for transportation to the retail stores. The current production and sales volume is 20,000 per year. Capacity is 25,000 units per year.
A Tennessee manufacturing firm has offered a one-year contract to supply speakers at a cost of $17.00 per unit. If Miller Company accepts the offer, it will be able to rent unused space to an outside firm for $18,000 per year. All other information remains the same as the original data. What is the effect on profits if Miller Company buys from the Tennessee firm?
Selected Answer:
c.
increase of $8,000
Elegance Bath Products, Inc. (EBP) makes a variety of ceramic sinks and tubs. EBP has just developed a line of sinks and tubs made from a mixture of glass and ceramic. The sinks sell for $150 each and have variable costs of $80. The tubs sell for $600 and have variable costs of $450. The glass and ceramic sinks and tubs require the use of specialized molding equipment. The specialized molding equipment has 4,050 hours of capacity per year. A sink uses an average of 2 hours of specialized molding equipment time; a tub uses an average of 5 hours of specialized molding equipment time.
Assume that EBP can sell as many as 1,000 sinks and 500 tubs per year. How many tubs should EBP produce?
Rose Manufacturing Company had the following unit costs:
Direct materials
$24
Direct labor
8
Variable overhead
10
Fixed overhead (allocated)
18
A one-time customer has offered to buy 2,000 units at a special price of $48 per unit. Assuming that sufficient unused production capacity exists to produce the order and no regular customers will be affected by the order, how much additional profit or loss will be generated by accepting the special order?
Selected Answer:
a.
$12,000 profit
Abbott Company is considering purchasing a new machine to replace a machine purchased one year ago that is not achieving the expected results. The following information is available:
Expected maintenance costs of new machine
$ 12,000 per year
Purchase price of existing machine
$150,000
Expected cost savings of new machine
$ 20,000 per year
Expected maintenance costs of existing machine
$ 8,000 per year
Resale value of existing machine
$ 35,000
Which of these items is irrelevant?
Selected Answer:
b.
Purchase cost of existing machine
Which of the following costs is not relevant to a decision to sell a product at split-off or process the product further and then sell the product?
Selected Answer:
a.
joint costs allocated to the product
Ring Company makes telephones. Currently, Ring makes all components of the telephones in-house. An outside company has offered to supply one component, part number X76, for $12 each. Ring uses 22,000 of these components per year. Costs of X76 are as follows:
Direct materials
$3.00
Direct labor
$1.50
Variable overhead
$2.75
Fixed overhead
$5.00
Assume that all of the fixed overhead is allocated and cannot be avoided. Should Ring purchase the part from the outside supplier?
