Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
73) Part S51 is used in one of Haberkorn Corporation's products. The company makes 12,000
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
$
6.30
Direct labor
$
5.70
Variable manufacturing overhead
$
4.80
Supervisor's salary
$
7.00
Depreciation of special equipment
$
8.60
Allocated general overhead
$
7.20
An outside supplier has offered to produce this part and sell it to the company for $37.70 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 $17,000 of these allocated
general overhead costs would be avoided.
The annual financial advantage (disadvantage) for the company as a result of buying the part
from the outside supplier would be:
A) ($5,800)
B) ($22,800)
C) ($149,800)
D) ($39,800)
74) Rebelo Corporation is presently making part E07 that is used in one of its products. A total
of 17,000 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
$
3.80
Direct labor
$
3.80
Variable manufacturing overhead
$
1.10
Supervisor's salary
$
2.50
Depreciation of special equipment
$
1.40
Allocated general overhead
$
8.60
An outside supplier has offered to make and sell the part to the company for $20.80 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, none of which would be avoided if the part were purchased instead of produced
internally. If management decides to buy part E07 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) ($6,800)
B) ($163,200)
C) $163,200
D) $6,800
75) The SP Corporation makes 40,000 motors to be used in the production of its sewing
machines. The average cost per motor at this level of activity is:
Direct materials
$
5.50
Direct labor
$
5.60
Variable manufacturing overhead
$
4.75
Fixed manufacturing overhead
$
4.45
An outside supplier recently began producing a comparable motor that could be used in the
sewing machine. The price offered to SP Corporation for this motor is $18. If SP Corporation
decides not to make the motors, there would be no other use for the production facilities and
none of the fixed manufacturing overhead cost could be avoided. Direct labor is a variable cost
in this company. The annual financial advantage (disadvantage) for the company as a result of
making the motors rather than buying them from the outside supplier would be:
A) $276,000
B) $86,000
C) ($92,000)
D) $178,000
76) Part U16 is used by McVean Corporation to make one of its products. A total of 13,000 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
$
2.90
Direct labor
$
7.50
Variable manufacturing overhead
$
8.00
Supervisor's salary
$
3.40
Depreciation of special equipment
$
1.80
Allocated general overhead
$
7.00
An outside supplier has offered to make the part and sell it to the company for $29.80 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 U16 could be used to make more of
one of the company's other products, generating an additional segment margin of $25,000 per
year for that product. The annual financial advantage (disadvantage) for the company as a result
of buying part U16 from the outside supplier should be:
A) $25,000
B) ($79,000)
C) ($35,400)
D) $14,600
77) Sardi Inc. is considering whether to continue to make a component or to buy it from an
outside supplier. The company uses 17,000 of the components each year. The unit product cost
of the component according to the company's cost accounting system is given as follows:
Direct materials
$
8.20
Direct labor
8.30
Variable manufacturing overhead
1.20
Fixed manufacturing overhead
4.30
Unit product cost
$
22.00
Assume that direct labor is a variable cost. Of the fixed manufacturing overhead, 70% is
avoidable if the component were bought from the outside supplier. In addition, making the
component uses 2 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 4
minutes on this machine and that has a contribution margin of $7.00 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) $24.21 per unit
B) $25.50 per unit
C) $20.71 per unit
D) $22.00 per unit
78) Gordon Corporation produces 1,000 units of a part per year which are used in the assembly
of one of its products. The unit cost of producing these parts is:
Variable manufacturing cost
$
15
Fixed manufacturing cost
12
Total manufacturing cost
$
27
The part can be purchased from an outside supplier at $20 per unit. If the part is purchased from
the outside supplier, two thirds of the total fixed costs incurred in producing the part can be
avoided. The annual financial advantage (disadvantage) for the company as a result of buying the
part from the outside supplier would be:
A) $3,000
B) ($1,000)
C) $7,000
D) ($5,000)
79) Supler Corporation produces a part used in the manufacture of one of its products. The unit
product cost is $18, computed as follows:
Direct materials
$
8
Direct labor
4
Variable manufacturing overhead
1
Fixed manufacturing overhead
5
Unit product cost
$
18
An outside supplier has offered to provide the annual requirement of 4,000 of the parts for only
$14 each. The company estimates that 60% 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 financial advantage (disadvantage)
of purchasing the parts from the outside supplier would be:
A) ($1) per unit on average
B) $1 per unit on average
C) $2 per unit on average
D) ($4) per unit on average
80) CoolAir Corporation manufactures portable window air conditioners. CoolAir has the
capacity to manufacture and sell 80,000 air conditioners each year but is currently only
manufacturing and selling 60,000. The following per unit numbers relate to annual operations at
60,000 units:
Per
Unit
Selling price
$
125
Manufacturing costs:
Variable
$
25
Fixed
$
40
Selling and administrative costs:
Variable
$
10
Fixed
$
15
The City of Clearwater would like to purchase 3,000 air conditioners from CoolAir but only if
they can get them for $75 each. Variable selling and administrative costs on this special order
will drop down to $2 per unit. This special order will not affect the 60,000 regular sales and it
will not affect the total fixed costs. The annual financial advantage (disadvantage) for the
company as a result of accepting this special order from the City of Clearwater should be:
A) ($21,000)
B) $24,000
C) $144,000
D) ($129,000)
81) A customer has requested that Lewelling Corporation fill a special order for 9,000 units of
product S47 for $20.50 a unit. While the product would be modified slightly for the special
order, product S47's normal unit product cost is $14.40:
Direct materials
$
3.10
Direct labor
1.50
Variable manufacturing overhead
6.40
Fixed manufacturing overhead
3.40
Unit product cost
$
14.40
Assume that 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 S47 that would increase the variable costs by $5.00 per unit and that would
require an investment of $36,000 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. The annual financial advantage (disadvantage) for the company
as a result of accepting this special order should be:
A) $(9,900)
B) $4,500
C) $54,900
D) $(26,100)
82) Gallerani Corporation has received a request for a special order of 6,000 units of product
A90 for $21.20 each. Product A90's unit product cost is $16.20, determined as follows:
Direct materials
$
6.10
Direct labor
4.20
Variable manufacturing overhead
2.30
Fixed manufacturing overhead
3.60
Unit product cost
$
16.20
Assume that 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 A90 that would increase the variable costs by $4.20 per unit and that would
require an investment of $21,000 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. The annual financial advantage (disadvantage) for the company
as a result of accepting this special order should be:
A) ($18,600)
B) ($16,200)
C) $30,000
D) $5,400
83) Landor Appliance Corporation makes and sells electric fans. Each fan regularly sells for $42.
The following cost data per fan is based on a full capacity of 150,000 fans produced each period.
Direct materials
$
8
Direct labor
$
9
Manufacturing overhead (70% variable and 30% unavoidable fixed)
$
10
A special order has been received by Landor for a sale of 25,000 fans to an overseas customer.
The only selling costs that would be incurred on this order would be $4 per fan for shipping.
Landor is now selling 120,000 fans through regular channels each period. Assume that direct
labor is an avoidable cost in this decision. What should Landor use as a minimum selling price
per fan in negotiating a price for this special order?
A) $28 per fan
B) $27 per fan
C) $31 per fan
D) $24 per fan
84) Banfield Corporation makes three products that use compound W, the current constrained
resource. Data concerning those products appear below:
VP
YI
WX
Selling price per unit
$
248.04
$
230.66
$
505.44
Variable cost per unit
$
190.71
$
172.14
$
388.80
Centiliters of compound W
3.90
3.80
8.10
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) WX, VP, YI
B) YI, VP, WX
C) WX, YI, VP
D) VP, WX, YI
85) Wood Carving Corporation manufactures three products. Because of a recent lack of skilled
wood carvers, the corporation has had a shortage of available labor hours. The following per unit
data relates to the three products of the corporation:
Letter
Openers
Elvis Statues
Candle
Holders
Selling price
$
30
$
80
$
42
Variable cost
$
20
$
40
$
20
Labor hours required
1
6
2
Assume that Wood Carving only has 1,800 labor hours available next month. Also assume that
Wood Carving can only sell 800 units of each product in a given month. What is the maximum
amount of contribution margin that Wood Carving can generate next month given this labor hour
shortage?
A) $12,000
B) $19,000
C) $19,600
D) $19,800
86) Danny Dolittle makes crafts in his spare time and always sells everything he makes at local
craft shows. Danny specializes in four products. Because Danny's time is limited before the next
craft show, he is trying to decide how to use his time to the best advantage. Information related
to the four products that Danny produces are shown below:
Rag Dolls
Pot Holders
Bread
Baskets
Finger
Puppets
Contribution margin per unit
$
8
$
2
$
12
$
6
Contribution margin ratio
40
%
25
%
32
%
30
%
Time required per unit (in hours)
1.4
0.5
3.5
2.0
Rank the products from the most profitable to the least profitable use of the constrained resource.
A) Rag Dolls, Pot Holders, Bread Baskets, Finger Puppets
B) Rag Dolls, Bread Baskets, Finger Puppets, Pot Holders
C) Pot Holders, Rag Dolls, Finger Puppets, Bread Baskets
D) Bread Baskets, Rag Dolls, Finger Puppets, Pot Holders
87) An automated turning machine is the current constraint at Jordison Corporation. Three
products use this constrained resource. Data concerning those products appear below:
LN
JQ
RQ
Selling price per unit
$
165.88
$
313.11
$
494.52
Variable cost per unit
118.30
239.61
381.42
Minutes on the constraint
2.60
4.90
7.80
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) LN, JQ, RQ
B) RQ, LN, JQ
C) RQ, JQ, LN
D) JQ, RQ, LN
88) Marley Corporation makes three products (X, Y, & Z) with the following characteristics:
Products
X
Y
Z
Selling price per unit
$
10
$
15
$
20
Variable cost per unit
$
6
$
10
$
10
Machine hours per unit
2
4
10
The company has a capacity of 2,000 machine hours, but there is virtually unlimited demand for
each product. In order to maximize total contribution margin, how many units of each product
should the company produce?
A) 2,000 units of X, 500 units of Y, and 200 units of Z
B) 0 units of X, 0 units of Y, and 200 units of Z
C) 0 units of X, 500 units of Y, and 0 units of Z
D) 1,000 units of X, 0 units of Y, and 0 units of Z
