Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
58. Part S00 is used in one of Morsey Corporation's products. The company makes 6,000 units of this part
each year. The company's Accounting Department reports the following costs of producing the part at this
level of activity:
Per Unit
Direct materials $1.40
Direct labor $2.40
Variable manufacturing overhead $7.20
Supervisor's salary $3.60
Depreciation of special equipment $8.90
Allocated general overhead $4.50
An outside supplier has offered to produce this part and sell it to the company for $16.10 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 $6,000 of these allocated general overhead costs would be avoided.
If management decides to buy part S00 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 decrease by $3,000 per year.
B) Net operating income would decrease by $71,400 per year.
C) Net operating income would decrease by $77,400 per year.
D) Net operating income would decrease by $65,400 per year.
59. Zuppa Corporation currently maintains its own printing department. The annual costs of running this
department are as follows:
Variable costs $30,000
Fixed costs 60,000
Total $90,000
Somatic Copy Service has offered to provide Zuppa with all of its printing needs at a total annual cost of
$68,000. If Zuppa went with this offer, they would close down their printing department. Except for 30% of the
fixed costs, all of the annual printing department costs above can be avoided if it was closed down. Based on
this information, would Zuppa be better off to keep its printing department or to shut it down and take
Somatic's offer and by how much?
A) $4,000 better off to go with Somatic
B) $5,000 better off to keep the department
C) $20,000 better off to keep the department
D) $22,000 better off to go with Somatic
60. Ramon Corporation makes 18,000 units of part E44 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:
Per Unit
Direct materials $2.20
Direct labor $5.40
Variable manufacturing overhead $8.00
Supervisor's salary $7.30
Depreciation of special equipment $6.60
Allocated general overhead $1.80
An outside supplier has offered to make and sell the part to the company for $23.30 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 $5,000 of these allocated general overhead costs would be avoided. In addition, the
space used to produce part E44 would be used to make more of one of the company's other products,
generating an additional segment margin of $21,000 per year for that product.
What would be the impact on the company's overall net operating income of buying part E44 from the outside
supplier?
A) Net operating income would increase by $21,000 per year.
B) Net operating income would increase by $18,800 per year.
C) Net operating income would decrease by $123,000 per year.
D) Net operating income would decrease by $165,000 per year.
61. Part A42 is used by Elgin Corporation to make one of its products. A total of 16,000 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:
Per Unit
Direct materials $7.50
Direct labor $8.90
Variable manufacturing overhead $5.50
Supervisor's salary $5.60
Depreciation of special equipment $8.00
Allocated general overhead $5.30
An outside supplier has offered to make the part and sell it to the company for $30.40 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
A42 could be used to make more of one of the company's other products, generating an additional segment
margin of $23,000 per year for that product. What would be the impact on the company's overall net operating
income of buying part A42 from the outside supplier?
A) Net operating income would decrease by $23,400 per year.
B) Net operating income would decrease by $143,400 per year.
C) Net operating income would increase by $23,000 per year.
D) Net operating income would decrease by $189,400 per year.
62. Barrus Corporation makes 30,000 motors to be used in the productions of its power lawn mowers. The
average cost per motor at this level of activity is as follows:
Direct materials $9.50
Direct labor $8.60
Variable manufacturing overhead $3.75
Fixed manufacturing overhead $4.35
This motor has recently become available from an outside supplier for $25 per motor. If Barrus decides not to
make the motors, none of the fixed manufacturing overhead would be avoidable and there would be no other
use for the facilities. If Barrus decides to continue making the motor, how much higher or lower will the
company's net operating income be than if the motors are purchased from the outside supplier? Assume that
direct labor is a variable cost in this company.
A) $36,000 lower
B) $207,000 higher
C) $94,500 higher
D) $130,500 higher
63. Tish Corporation produces a part used in the manufacture of one of its products. The unit product cost is
$26, computed as follows:
Direct materials $10
Direct labor 7
Variable manufacturing overhead 1
Fixed manufacturing overhead 8
Unit product cost $26
An outside supplier has offered to provide the annual requirement of 5,000 of the parts for only $21 each. The
company estimates that 75% of the fixed manufacturing overhead cost above could be eliminated 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 from the outside supplier would
be:
A) $1 disadvantage
B) $5 advantage
C) $3 advantage
D) $4 disadvantage
64. Kampmann Corporation is presently making part Z95 that is used in one of its products. A total of 5,000
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:
Per Unit
Direct materials $3.50
Direct labor $7.10
Variable manufacturing overhead $1.30
Supervisor's salary $5.00
Depreciation of special equipment $5.40
Allocated general overhead $8.60
An outside supplier has offered to make and sell the part to the company for $24.10 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 Z95 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 decrease by $36,000 per year.
B) Net operating income would decrease by $34,000 per year.
C) Net operating income would increase by $34,000 per year.
D) Net operating income would increase by $36,000 per year.
65. Teich Inc. is considering whether to continue to make a component or to buy it from an outside supplier.
The company uses 15,000 of the components each year. The unit product cost of the component according to
the company's absorption cost accounting system is given as follows:
Direct materials $7.90
Direct labor 2.10
Variable manufacturing overhead 1.10
Fixed manufacturing overhead 4.00
Unit product cost $15.10
Assume that direct labor is a variable cost. Of the fixed manufacturing overhead, 10% is avoidable if the
component were bought from the outside supplier; the remainder is not avoidable. In addition, making the
component uses 3 minutes on the machine that is the company's current constraint. If the component were
bought, time would be freed up for use on another product that requires 6 minutes on this machine and that
has a contribution margin of $8.10 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) $15.55 per unit
B) $11.50 per unit
C) $19.15 per unit
D) $15.10 per unit
66. Gwinnett Barbecue Sauce Corporation manufactures a specialty barbecue sauce. Gwinnett has the
capacity to manufacture and sell 10,000 cases of sauce each year but is currently only manufacturing and
selling 9,000. The following costs relate to annual operations at 9,000 cases:
Total Cost
Variable manufacturing cost $126,000
Fixed manufacturing cost $45,000
Variable selling and administrative cost $18,000
Fixed selling and administrative cost $27,000
Gwinnett normally sells its sauce for $30 per case. A local school district is interested in purchasing
Gwinnett's excess capacity of 1,000 cases of sauce but only if they can get the sauce for $15 per case. This
special order would not affect regular sales or total fixed costs or variable costs per unit. If this special order is
accepted, Gwinnett's profits for the year will:
A) increase by $600
B) decrease by $1,000
C) decrease by $4,000
D) decrease by $6,600
67. Farnsworth Television makes and sells portable television sets. Each television regularly sells for $200.
The following cost data per television are based on a full capacity of 12,000 televisions produced each period:
Direct materials $75
Direct labor $55
Manufacturing overhead (75% variable, 25% unavoidable fixed) $48
A special order has been received by Farnsworth for a sale of 2,500 televisions to an overseas customer. The
only selling costs that would be incurred on this order would be $10 per television for shipping. Farnsworth is
now selling 7,200 televisions through regular distributors each period. What should be the minimum selling
price per television in negotiating a price for this special order?
A) $200
B) $166
C) $178
D) $176
68. Wiacek Corporation has received a request for a special order of 4,000 units of product F65 for $26.60
each. Product F65's unit product cost is $25.80, determined as follows:
Direct materials $ 2.40
Direct labor 7.70
Variable manufacturing overhead 6.80
Fixed manufacturing overhead 8.90
Unit product cost $25.80
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 F65 that would
increase the variable costs by $3.00 per unit and that would require an investment of $23,000 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) $(31,800)
B) $3,800
C) $3,200
D) $(48,400)
69. A customer has requested that Gamba Corporation fill a special order for 3,000 units of product Q41 for
$25.00 a unit. While the product would be modified slightly for the special order, product Q41's normal unit
product cost is $21.40:
Direct materials $ 5.70
Direct labor 3.40
Variable manufacturing overhead 5.80
Fixed manufacturing overhead 6.50
Unit product cost $21.40
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 Q41 that would
increase the variable costs by $7.00 per unit and that would require an investment of $15,000 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) $(5,700)
B) $(21,300)
C) $(25,200)
D) $10,800
70. Hoang Corporation makes three products that use compound W, the current constrained resource. Data
concerning those products appear below:
KI LH RP
Selling price per unit $252.42 $543.75 $222.84
Variable cost per unit $199.92 $426.30 $163.80
Centiliters of compound W 4.20 8.70 3.60
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) RP,KI,LH
B) RP,LH,KI
C) KI,RP,LH
D) LH,RP,KI
71. Manico Corporation produces three products -- X, Y, & Z -- with the following characteristics:
X Y Z
Selling price per unit $20 100% $16 100% $15 100%
Variable cost per unit 12 60% 12 75% 6 40%
Contribution margin per unit $ 8 40% $ 4 25% $ 9 60%
Machine hours per unit 5 3 6
The company has only 2,000 machine-hours available each month. If demand exceeds the company's
capacity, in what sequence should orders be filled if the company wants to maximize its total contribution
margin?
A) orders for Z first, X second, and Y third
B) orders for X first, Z second, and Y third
C) orders for Y first, X second, and Z third
D) orders for Z first and no orders for X or Y
72. Oruro Chemical Corporation manufactures a variety of household cleaners, solvents, and beverages.
Because of a recent shortage of mytron, a key ingredient needed for three of its products, the corporation has
to decide what amount of each product would be most advantageous to produce. Information related to the
three products that use mytron are shown below:
Hand Soap Paint Remover Root Beer
Contribution margin per case $24 $20 $12
Contribution margin ratio 50% 70% 60%
Mytron required per case (in ounces) 3 5 2
Maximum monthly demand (in cases) 500 200 2,000
Assume that Oruro only has 3,000 ounces of mytron available next month. What is the maximum amount of
contribution margin that Oruro can generate next month from the three products above given the shortage of
mytron?
A) $16,000
B) $19,000
C) $21,000
D) $24,000
73. Consider the following production and cost data for two products, Q and P:
Product Q Product P
Contribution margin per unit $40 $36
Machine minutes needed per unit 8 minutes 6 minutes
A total of 24,000 machine minutes are 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) $144,000
C) $456,000
D) $132,000
74. Fahringer Corporation makes three products that use compound W, the current constrained resource.
Data concerning those products appear below:
BJ XS QR
Selling price per unit $480.80 $365.40 $70.29
Variable cost per unit $396.00 $276.08 $51.70
Centiliters of compound W 8.00 5.80 1.10
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) XS,BJ,QR
B) QR,BJ,XS
C) BJ,QR,XS
D) QR,XS,BJ
75. Consider the following production and cost data for two products, L and C:
Product L Product C
Contribution margin per unit $130 $120
Machine set-ups needed per unit 10 set-ups 8 set-ups
The company can only perform 65,000 machine set-ups each period due to limited skilled labor and there is
unlimited demand for each product. What is the largest possible total contribution margin that can be realized
each period?
A) $845,000
B) $975,000
C) $910,000
D) $1,820,000
76. The constraint at Johngrass Corporation is time on a particular machine. The company makes three
products that use this machine. Data concerning those products appear below:
VT UV LQ
Selling price per unit $100.00 $301.44 $484.27
Variable cost per unit $77.76 $233.76 $392.63
Minutes on the constraint 1.60 4.80 7.90
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) $11.60 per minute
B) $14.10 per minute
C) $91.64 per unit
D) $22.24 per unit
77. Palinkas Cane Products, Inc., processes sugar cane in batches. The company buys a batch of sugar cane
from farmers for $80 which is then crushed in the company's plant at a cost of $11. Two intermediate
products, cane fiber and cane juice, emerge from the crushing process. The cane fiber can be sold as is for
$22 or processed further for $10 to make the end product industrial fiber that is sold for $30. The cane juice
can be sold as is for $41 or processed further for $27 to make the end product molasses that is sold for $101.
How much more profit (loss) does the company make by processing one batch of sugar cane into the end
products industrial fiber and molasses?
A) $(128)
B) $3
C) $(28)
D) $31
78. Crooks Corporation processes sugar beets in batches that it purchases from farmers for $57 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 $28 or processed further for
$17 to make the end product industrial fiber that is sold for $67. The beet juice can be sold as is for $39 or
processed further for $24 to make the end product refined sugar that is sold for $54. 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 be processed into industrial fiber; beet juice should NOT be processed into refined sugar
C) beet fiber should NOT be processed into industrial fiber; beet juice should be processed into refined sugar
D) beet fiber should NOT be processed into industrial fiber; beet juice should NOT be processed into refined
sugar
79. Kosakowski Corporation processes sugar beets in batches. A batch of sugar beets costs $66 to buy from
farmers and $17 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 $23 or processed further for $13 to
make the end product industrial fiber that is sold for $36. The beet juice can be sold as is for $42 or
processed further for $20 to make the end product refined sugar that is sold for $84. How much more profit
(loss) does the company make by processing one batch of sugar beets into the end products industrial fiber
and refined sugar?
A) $(18)
B) $4
C) $22
D) $(116)
80. Gary Corporation produces products X, Y, and Z from a single raw material input. Budgeted data for the
next month is as follows:
Product X Product Y Product Z
Units produced 2,500 3,000 4,000
Per unit sales value at split-off $20.00 $22.00 $25.00
Added processing costs per unit $8.00 $8.50 $8.00
Per unit sales value if processed further $30.00 $30.00 $35.00
If the cost of raw material input is $150,000, which of the products should be processed beyond the split-off
point?
Product X Product Y Product Z
A) no yes no
B) no yes yes
C) yes no yes
D) yes yes no
81. Gierlach Beet Processors, Inc., processes sugar beets in batches. A batch of sugar beets costs $27 to
buy from farmers and $17 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 $27 or processed further for $14
to make the end product industrial fiber that is sold for $34. The beet juice can be sold as is for $32 or
processed further for $29 to make the end product refined sugar that is sold for $58. How much more profit
(loss) does the company make by processing the intermediate product beet juice into refined sugar rather
than selling it as is?
A) $(47)
B) $(20)
C) $(3)
D) $(25)
82. Yukon Perfume Corporation manufactures three distinct perfumes (I, II, and III) from a single joint
process. The three perfumes can be sold to discount stores in the form they are in at the split-off point.
However, if the perfumes are further processed, they can be sold to specialty stores. Costs related to each
batch of perfume separation is as follows:
Perfume I Perfume II Perfume III
Sales value at split-off point $1,500 $800 $900
Allocated joint costs $1,000 $1,000 $1,000
Sales value after further processing $3,500 $2,500 $2,000
Cost of further processing $1,600 $1,400 $500
For which product(s) above would it be more profitable for Yukon to sell after further processing rather than at
the split-off point?
A) I only
B) III only
C) I and II only
D) II and III only
E) I, II, and III
83. Two products, LB and NH, emerge from a joint process. Product LB has been allocated $30,800 of the
total joint costs of $44,000. A total of 2,000 units of product LB are produced from the joint process. Product
LB can be sold at the split-off point for $13 per unit, or it can be processed further for an additional total cost
of $14,000 and then sold for $15 per unit. If product LB 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) $16,000 more profit
B) $20,800 more profit
C) $40,800 less profit
D) $10,000 less profit
84. Arenz Corporation processes sugar cane in batches. The company purchases a batch of sugar cane for
$53 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
$24 or processed further for $18 to make the end product industrial fiber that is sold for $40. The cane juice
can be sold as is for $41 or processed further for $25 to make the end product molasses that is sold for $72.
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
85. Cybil Baunt just inherited a 1958 Chevy Impala from her late Aunt Joop. Aunt Joop purchased the car 40
years ago for $6,000. Cybil is either going to sell the car for $8,000 or have it restored and sell it for $22,000.
The restoration will cost $6,000. Cybil would be better off by:
A) $2,000 to have the vehicle restored
B) $6,000 to have the vehicle restored
C) $8,000 to have the vehicle restored
D) $10,000 to have the vehicle restored
86. Based on the information above, what will be Jebb's increase or decrease in profit for the year if he
chooses to start slicing up the lettuce instead of selling it whole?
A) $3,000 increase
B) $3,000 decrease
C) $12,000 decrease
D) $30,000 increase
87. Assume that Jebb is currently selling only 50,000 heads of lettuce per year instead of 60,000. Under this
scenario, what will be Jebb's increase or decrease in profit for the year if he chooses to start slicing up the
lettuce instead of selling it whole?
A) $2,000 increase
B) $2,500 decrease
C) $3,000 increase
D) $3,500 decrease
88. 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) Both materials costs and processing costs are relevant
B) Only materials costs are relevant
C) Neither materials costs nor processing costs are relevant
D) Only processing costs are relevant
