Nesmith Corporation is considering two alternatives: A and B. Costs associated with the alternatives are listed
below:
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
89. What is the differential cost of Alternative B over Alternative A, including all of the relevant costs?
A) $150,000
B) $100,000
C) $125,000
D) $50,000
90. The sunk cost in this situation is:
A) $40,000
B) $750,000
C) $690,000
D) $1,100,000
91. What is the net advantage or disadvantage to the company from upgrading the computers rather than
selling them in their present condition?
A) $20,000 advantage
B) $20,000 disadvantage
C) $60,000 advantage
D) $60,000 disadvantage
92. Suppose the selling price of the upgraded computers has not been set. At what selling price per unit
would the company be as well off upgrading the computers as if it just sold the computers in their present
condition?
A) $86.50
B) $887.50
C) $912.50
D) $562.50
93. 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 processing costs are relevant
B) Both materials costs and processing costs are relevant
C) Only materials costs are relevant
D) Neither materials costs nor processing costs are relevant
94. What is the differential cost of Alternative Y over Alternative X, including all of the relevant costs?
A) $122,000
B) $136,000
C) $108,000
D) $28,000
95. According to the company’s accounting system, what is the net operating income earned by product
V41B? Include all costs in this calculation—whether relevant or not.
A) $71,000
B) $516,000
C) $(516,000)
D) $(71,000)
96. What would be the effect on the company’s overall net operating income if product V41B were dropped?
A) Overall net operating income would increase by $71,000.
B) Overall net operating income would increase by $132,000.
C) Overall net operating income would decrease by $132,000.
D) Overall net operating income would decrease by $71,000.
97. If the F-27 product is added next year, the change in operating income should be:
A) $30,000 increase
B) $5,000 decrease
C) $23,000 increase
D) $15,000 increase
98. At what selling price would the new product be just breaking even?
A) $52.25 per unit
B) $50.50 per unit
C) $55.75 per unit
D) $49.00 per unit
99. According to the company’s accounting system, what is the net operating income earned by product
I11S? Include all costs in this calculation—whether relevant or not.
A) $410,000
B) $46,000
C) $(46,000)
D) $(410,000)
100. What would be the effect on the company’s overall net operating income if product I11S were dropped?
A) Overall net operating income would decrease by $46,000.
B) Overall net operating income would increase by $93,000.
C) Overall net operating income would increase by $46,000.
D) Overall net operating income would decrease by $93,000.
101. Assume that dropping Product G will have no effect on other product lines. If the company drops Product
G, the change in annual net operating income due to this decision will be a:
A) $10,000 decrease
B) $55,000 increase
C) $15,000 decrease
D) $40,000 decrease
102. Assume that dropping Product G would result in a $40,000 increase in the contribution margin of other
product lines. If Bailey chooses to drop Product G, then the change in net operating income next year due to
this action will be a:
A) $95,000 increase
B) $95,000 decrease
C) $25,000 decrease
D) $25,000 increase
103. If management decides to buy part P42 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 $5,000 per year.
B) Net operating income would decline by $59,000 per year.
C) Net operating income would decline by $51,000 per year.
D) Net operating income would decline by $55,000 per year.
104. In addition to the facts given above, assume that the space used to produce part P42 could 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
P42 from the outside supplier and using the freed space to make more of the other product?
A) Net operating income would increase by $13,000 per year.
B) Net operating income would increase by $8,000 per year.
C) Net operating income would decline by $42,000 per year.
D) Net operating income would decline by $68,000 per year.
105. The change in the company’s overall annual net operating income that would result from making the
component, rather than buying it, would be:
A) $17,000 increase.
B) $1,000 decrease.
C) $14,000 decrease.
D) $5,000 increase.
106. What would the annual cost of additional supervision have to be in order for Hadley to be indifferent
between making or buying the component? (Assume everything else remains the same.)
A) $20,000
B) $19,000
C) $18,000
D) $17,000
107. If Talbot chooses to buy the wheel from the outside supplier, then annual net operating income would:
A) increase by $35,000.
B) decrease by $10,000.
C) increase by $45,000.
D) increase by $70,000.
108. At what purchase price for the wheels would Talbot be indifferent between making or buying the wheels?
A) $1.70 per wheel
B) $1.60 per wheel
C) $1.55 per wheel
D) $1.15 per wheel
[QUESTION]
109. If management decides to buy part J56 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 $44,000 per year.
B) Net operating income would increase by $10,000 per year.
C) Net operating income would decline by $10,000 per year.
D) Net operating income would decline by $44,000 per year.
110. In addition to the facts given above, assume that the space used to produce part J56 could 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
J56 from the outside supplier and using the freed space to make more of the other product?
A) Net operating income would decline by $31,000 per year.
B) Net operating income would decline by $23,000 per year.
C) Net operating income would increase by $3,000 per year.
D) Net operating income would increase by $13,000 per year.
[QUESTION]
111. How much of the unit product cost of $59.90 is relevant in the decision of whether to make or buy the
part?
A) $38.00 per unit
B) $59.90 per unit
C) $35.20 per unit
D) $22.70 per unit
[QUESTION]
112. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it?
A) $264,000
B) $(328,000)
C) $548,000
D) $(64,000)
113. What is the maximum amount the company should be willing to pay an outside supplier per unit for the
part if the supplier commits to supplying all 40,000 units required each year?
A) $6.60 per unit
B) $44.60 per unit
C) $59.90 per unit
D) $66.50 per unit
114. Suppose there is ample idle capacity to produce the units required by the overseas customer and the
special discounted price on the special order is $76.40 per unit. By how much would this special order
increase (decrease) the company’s net operating income for the month?
A) $(17,000)
B) $13,400
C) $48,000
D) $(5,000)
115. What is the contribution margin per unit for normal sales?
A) $32.50
B) $8.40
C) $9.70
D) $7.20
116. Suppose there is not enough idle capacity to produce all of the units for the overseas customer and
accepting the special order would require cutting back on production of 700 units for regular customers. The
minimum acceptable price per unit for the special order is closest to:
A) $86.10
B) $78.90
C) $69.10
D) $63.78
117. The company has received a special, one-time-only order for 500 units of component D53. There would
be no variable selling expense on this special order and the total fixed manufacturing overhead and fixed
selling and administrative expenses of the company would not be affected by the order. Assuming that
Dockwiller has excess capacity and can fill the order without cutting back on the production of any product,
what is the minimum price per unit below which the company should not accept the special order?
A) $67 per unit
B) $30 per unit
C) $150 per unit
D) $47 per unit
118. The company has received a special, one-time-only order for 300 units of component D53. There would
be no variable selling expense on this special order and the total fixed manufacturing overhead and fixed
selling and administrative expenses of the company would not be affected by the order. However, assume
that Dockwiller has no excess capacity and this special order would require 30 minutes of the constraining
resource, which could be used instead to produce products with a total contribution margin of $1,800. What is
the minimum price per unit on the special order below which the company should not go?
A) $73 per unit
B) $36 per unit
C) $53 per unit
D) $6 per unit
119. Refer to the original data in the problem. What is the current contribution margin per unit for component
D53 based on its selling price of $150 and its annual production of 8,000 units?
A) $83 per unit
B) $118 per unit
C) $32 per unit
D) $120 per unit
120. Suppose the special order is for 4,000 haks this month. If this offer is accepted by Molis, the company’s
operating income for the month will:
A) increase by $6,000
B) decrease by $6,000
C) increase by $5,000
D) decrease by $5,000