Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
54) Otool Inc. is considering using stocks of an old raw material in a special project. The special
project would require all 240 kilograms of the raw material that are in stock and that originally
cost the company $2,112 in total. If the company were to buy new supplies of this raw material
on the open market, it would cost $9.25 per kilogram. However, the company has no other use
for this raw material and would sell it at the discounted price of $8.35 per kilogram if it were not
used in the special project. The sale of the raw material would involve delivery to the purchaser
at a total cost of $71 for all 240 kilograms. What is the relevant cost of the 240 kilograms of the
raw material when deciding whether to proceed with the special project?
A) $1,933
B) $2,004
C) $2,220
D) $2,112
55) Milford Corporation has in stock 16,100 kilograms of material R that it bought five years ago
for $5.75 per kilogram. This raw material was purchased to use in a product line that has been
discontinued. Material R can be sold as is for scrap for $3.91 per kilogram. An alternative would
be to use material R in one of the company's current products, S88Y, which currently requires 2
kilograms of a raw material that is available for $7.60 per kilogram. Material R can be modified
at a cost of $0.77 per kilogram so that it can be used as a substitute for this material in the
production of product S88Y. However, after modification, 4 kilograms of material R is required
for every unit of product S88Y that is produced. Milford Corporation has now received a request
from a company that could use material R in its production process. Assuming that Milford
Corporation could use all of its stock of material R to make product S88Y or the company could
sell all of its stock of the material at the current scrap price of $3.91 per kilogram, what is the
minimum acceptable selling price of material R to the company that could use material R in its
own production process?
A) $0.88 per kg
B) $3.03 per kg
C) $4.57 per kg
D) $3.91 per kg
56) Schickel Inc. regularly uses material B39U and currently has in stock 460 liters of the
material for which it paid $3,128 several weeks ago. If this were to be sold as is on the open
market as surplus material, it would fetch $5.95 per liter. New stocks of the material can be
purchased on the open market for $6.45 per liter, but it must be purchased in lots of 1,000 liters.
You have been asked to determine the relevant cost of 760 liters of the material to be used in a
job for a customer. The relevant cost of the 760 liters of material B39U is:
A) $4,902
B) $4,672
C) $4,522
D) $6,450
57) One of the employees of Davenport Corporation recently was involved in an accident with
one of the corporation's delivery vans. The corporation is either going to repair the damaged van
or sell it as is and buy a comparable used van. Information related to this decision is provided
below:
Initial cost of the damaged van
$30,000
Accumulated depreciation to date on van
$18,000
Salvage value of van immediately before crash
$9,000
Salvage value of van immediately after crash
$1,000
Cost to repair damaged van
$5,000
Cost of a comparable used van
$10,000
Based on the information above, Davenport would be financially better off:
A) $1,000 by buying the comparable van.
B) $2,000 by buying the comparable van.
C) $2,000 by repairing the damaged van.
D) $4,000 by repairing the damaged van.
58) Winder Corporation is a specialty component manufacturer with idle capacity. Management
would like to use its extra capacity to generate additional profits. A potential customer has
offered to buy 3,000 units of component QEA. Each unit of QEA requires 5 units of material F85
and 5 units of material E71. Data concerning these two materials follow:
Material
Units in
Stock
Original Cost Per
Unit
Current Market
Price Per Unit
Disposal Value Per
Unit
F85
740
$
4.90
$
4.75
$
4.20
E71
13,680
$
5.00
$
4.70
$
3.60
Material F85 is in use in many of the company's products and is routinely replenished. Material
E71 is no longer used by the company in any of its normal products and existing stocks would
not be replenished once they are used up.
What would be the relevant cost of the materials, in total, for purposes of determining a
minimum acceptable price for the order for product QEA?
A) $126,702
B) $141,750
C) $126,295
D) $145,965
59) Lusk Corporation produces and sells 10,000 units of Product X each month. The selling price
of Product X is $40 per unit, and variable expenses are $32 per unit. A study has been made
concerning whether Product X should be discontinued. The study shows that $70,000 of the
$120,000 in monthly fixed expenses charged to Product X would not be avoidable even if the
product was discontinued. If Product X is discontinued, the annual financial advantage
(disadvantage) for the company of eliminating this product should be:
A) ($30,000)
B) $30,000
C) $40,000
D) ($40,000)
60) Product U23N has been considered a drag on profits at Jinkerson Corporation for some time
and management is considering discontinuing the product altogether. Data from the company's
budget for the upcoming year appear below:
Sales
$730,000
Variable expenses
$350,000
Fixed manufacturing expenses
$234,000
Fixed selling and administrative expenses
$161,000
In the company's accounting system all fixed expenses of the company are fully allocated to
products. Further investigation has revealed that $144,000 of the fixed manufacturing expenses
and $93,000 of the fixed selling and administrative expenses are avoidable if product U23N is
discontinued. The financial advantage (disadvantage) for the company of eliminating this
product for the upcoming year would be:
A) $15,000
B) $143,000
C) ($143,000)
D) ($15,000)
61) The Cook Corporation has two divisions--East and West. The divisions have the following
revenues and expenses:
East
West
Sales
$
500,000
$
550,000
Variable costs
200,000
275,000
Traceable fixed costs
150,000
180,000
Allocated common corporate costs
135,000
170,000
Net operating income (loss)
$
15,000
$
(75,000
)
The management of Cook is considering the elimination of the West Division. If the West
Division were eliminated, its traceable fixed costs could be avoided. Total common corporate
costs would be unaffected by this decision. Given these data, the elimination of the West
Division would result in an overall company net operating income (loss) of:
A) $15,000
B) ($155,000)
C) ($75,000)
D) ($60,000)
62) Wallen Corporation is considering eliminating a department that has an annual contribution
margin of $80,000 and $160,000 in annual fixed costs. Of the fixed costs, $90,000 cannot be
avoided. The annual financial advantage (disadvantage) for the company of eliminating this
department would be:
A) $10,000
B) ($10,000)
C) $80,000
D) ($80,000)
63) Fabri Corporation is considering eliminating a department that has an annual contribution
margin of $35,000 and $70,000 in annual fixed costs. Of the fixed costs, $25,000 cannot be
avoided. The annual financial advantage (disadvantage) for the company of eliminating this
department would be:
A) $10,000
B) ($10,000)
C) $35,000
D) ($35,000)
64) The management of Furrow Corporation is considering dropping product L07E. Data from
the company's budget for the upcoming year appear below:
Sales
$830,000
Variable expenses
$365,000
Fixed manufacturing expenses
$291,000
Fixed selling and administrative expenses
$166,000
In the company's accounting system all fixed expenses of the company are fully allocated to
products. Further investigation has revealed that $186,000 of the fixed manufacturing expenses
and $106,000 of the fixed selling and administrative expenses are avoidable if product L07E is
discontinued. The financial advantage (disadvantage) for the company of eliminating this
product for the upcoming year would be:
A) $8,000
B) ($173,000)
C) ($8,000)
D) $173,000
65) A study has been conducted to determine if one of the departments in Carry Corporation
should be discontinued. The contribution margin in the department is $80,000 per year. Fixed
expenses charged to the department are $95,000 per year. It is estimated that $50,000 of these
fixed expenses could be eliminated if the department is discontinued. These data indicate that if
the department is discontinued, the yearly financial advantage (disadvantage) for the company
would be:
A) ($15,000)
B) $15,000
C) ($30,000)
D) $30,000
66) A study has been conducted to determine if Product A should be dropped. Sales of the
product total $500,000; variable expenses total $340,000. Fixed expenses charged to the product
total $210,000. The company estimates that $60,000 of these fixed expenses are not avoidable
even if the product is dropped. If Product A is dropped, the annual financial advantage
(disadvantage) for the company of eliminating this product should be:
A) ($10,000)
B) $10,000
C) ($50,000)
D) $50,000
67) Vanik Corporation currently has two divisions which had the following operating results for
last year:
Cork Division
Rubber
Division
Sales
$
600,000
350,000
Variable costs
250,000
220,000
Contribution margin
350,000
130,000
Traceable fixed costs
160,000
110,000
Segment margin
190,000
20,000
Allocated common corporate fixed costs
80,000
45,000
Net operating income (loss)
$
110,000
(25,000
)
Because the Rubber Division sustained a loss, the president of Vanik is considering the
elimination of this division. All of the division's traceable fixed costs could be avoided if the
division was dropped. None of the allocated common corporate fixed costs could be avoided. If
the Rubber Division was dropped at the beginning of last year, the financial advantage
(disadvantage) to the company for the year would have been:
A) ($20,000)
B) $20,000
C) $25,000
D) ($25,000)
68) The following information relates to next year's projected operating results of the Children's
Division of Grunge Clothing Corporation:
Contribution margin
$
200,000
Fixed expenses
500,000
Net operating loss
$
(300,000
)
If the Children's Division is eliminated, $170,000 of the above fixed expenses could be avoided.
The annual financial advantage (disadvantage) for the company of eliminating this division
should be:
A) ($300,000)
B) $30,000
C) ($30,000)
D) $300,000
69) Kahn Corporation (a multi-product company) produces and sells 8,000 units of Product X
each year. Each unit of Product X sells for $10 and has a contribution margin of $6. If Product X
is discontinued, $50,000 of the $60,000 in annual fixed costs charged to Product X could be
eliminated. The annual financial advantage (disadvantage) for the company of eliminating this
product should be:
A) $2,000
B) ($2,000)
C) $12,000
D) ($12,000)
70) Norgaard Corporation makes 8,000 units of part G25 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
$
6.70
Direct labor
$
8.10
Variable manufacturing overhead
$
1.10
Supervisor's salary
$
2.00
Depreciation of special equipment
$
4.20
Allocated general overhead
$
2.10
An outside supplier has offered to make and sell the part to the company for $21.20 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 $2,000 of these allocated general
overhead costs would be avoided. In addition, the space used to produce part G25 would be used
to make more of one of the company's other products, generating an additional segment margin
of $16,000 per year for that product.
The annual financial advantage (disadvantage) for the company as a result of buying part G25
from the outside supplier should be:
A) ($8,400)
B) $16,000
C) ($8,000)
D) ($40,000)
71) Sharp Corporation produces 8,000 parts each year, which are used in the production of one
of its products. The unit product cost of a part is $36, computed as follows:
Variable production cost
$
16
Fixed production cost
20
Unit product cost
$
36
The parts can be purchased from an outside supplier for only $28 each. The space in which the
parts are now produced would be idle and fixed production costs would be reduced by one-
fourth. Based on these data, the financial advantage (disadvantage) of purchasing the parts from
the outside supplier would be:
A) $24,000
B) ($24,000)
C) $56,000
D) ($56,000)
72) Zouar Computer Corporation currently manufactures the disk drives that it uses in its
computers. The costs to produce 5,000 of these disk drives last year were as follows:
Cost per
drive
Direct materials
$
12
Direct labor
2
Variable manufacturing overhead
5
Fixed manufacturing overhead
7
Total
$
26
Kidal Electronics has offered to provide Zouar with all of its disk drive needs for $27 per drive.
If Zouar accepts this offer, Zouar will be able to use the freed up space to generate an additional
$40,000 of income each year to produce more of its computer keyboards. Only $3 per drive of
the fixed manufacturing overhead cost above could be avoided. Direct labor is an avoidable cost
in this decision. Based on this information, would Zouar be financially better off making the
drives or buying the drives and by how much?
A) $15,000 better to buy
B) $20,000 better to buy
C) $35,000 better to buy
D) $60,000 better to make
