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Student name:__________
1) Costs associated with two alternatives, code-named Q and R, being considered by
Albiston Corporation are listed below:
Alternative Q Alternative R
Supplies costs $ 68,000 $ 68,000
Power costs $ 31,500 $ 30,300
Inspection costs $ 22,000 $ 30,300
Assembly costs $ 36,000 $ 36,000
Required:
a. Which costs are relevant and which are not relevant in the choice between these two
alternatives?
b. What is the differential cost between the two alternatives?
2) Saalfrank Corporation is considering two alternatives that are code-named M and N.
Costs associated with the alternatives are listed below:
Alternative M Alternative N
Supplies costs $ 77,000 $ 70,000
Assembly costs $ 51,000 $ 51,000
Power costs $ 31,000 $ 46,000
Inspection costs $ 44,000 $ 33,000
Required:
a. Which costs are relevant and which are not relevant in the choice between these two
alternatives?
b. What is the differential cost between the two alternatives?
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3) Companies often allocate common fixed costs among segments. For example, common
fixed corporate costs are often allocated to divisions and appear as part of the divisional
performance reports.
Required:
What dangers are there in allocating common fixed costs to segments when involved in a
decision to possibly drop a segment such as a product or a division?
4) The most recent monthly income statement for Benner Stores is given below:
Total Store A Store B
Sales $ 1,000,000 $ 400,000 $ 600,000
Variable expenses 580,000 160,000 420,000
Contribution margin 420,000 240,000 180,000
Traceable fixed expenses 300,000 100,000 200,000
Store segment margin 120,000 140,000 (20,000)
Common fixed expenses 50,000 20,000 30,000
Net operating income $ 70,000 $ 120,000 $ (50,000)
Due to its poor showing, consideration is being given to closing Store B. Studies show that if
Store B is closed, one-fourth of its traceable fixed expenses will continue unchanged. The studies
also show that closing Store B would result in a 10 percent decrease in sales in Store A. The
company allocates common fixed expenses to the stores on the basis of sales dollars.
Required:
Determine the monthly financial advantage (disadvantage) of closing Store B.
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5) Lakeshore Tours Incorporated, operates a large number of tours throughout the United
States. A study has indicated that some of the tours are not profitable, and consideration is being
given to dropping these tours in order to improve the company’s overall operating performance.
One such tour is a two-day Battlefields of the French and Indian Wars bus tour. An income
statement from one of these tours is given below:
Ticket revenue (100 seats × 45% occupancy × $80 ticket price) $
3,600 100%
Variable expenses ($24 per person) 1,080 30%
Contribution margin 2,520 70%
Fixed tour expenses:
Tour promotion $ 620
Salary of bus driver 400
Fee, tour guide 825
Fuel for bus 100
Depreciation of bus 400
Liability insurance, bus 250
Overnight parking fee, bus 50
Room and meals, bus driver and tour guide 75
Bus maintenance and preparation 325
Total fixed tour expenses 3,045
Net operating loss $ (525)
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Dropping this tour would not affect the number of buses in the company’s fleet or the number of
bus drivers on the company’s payroll. Buses do not wear out through use; rather, they eventually
become obsolete. Bus drivers are paid fixed annual salaries; tour guides are paid for each tour
conducted. The “Bus maintenance and preparation” cost above is an allocation of the salaries of
mechanics and other service personnel who are responsible for keeping the company’s fleet of
buses in good operating condition. There would be no change in the number of mechanics and
other service personnel as a result of dropping this tour. The liability insurance depends upon the
number of buses in the company’s fleet and not upon how much they are used.
Required:
a. Prepare an analysis showing the financial advantage (disadvantage) if this tour is
discontinued.
b. The company’s tour director has been criticized because only about 50% of the seats on the
company’s tours are being filled as compared to an average of 60% for the industry. The tour
director has explained that the company’s average seat occupancy could be improved
considerably by eliminating about 10% of the tours, but that doing so would reduce profits. Do
you agree with the tour director’s conclusion? Explain your response.
6) The management of Wengel Corporation is considering dropping product B90D. Data
from the company’s accounting system appear below:
Sales $ 736,400
Variable expenses $ 382,600
Fixed manufacturing expenses $ 250,600
Fixed selling and administrative expenses $ 213,800
All fixed expenses of the company are fully allocated to products in the company’s accounting
system. Further investigation has revealed that $177,000 of the fixed manufacturing expenses
and $153,400 of the fixed selling and administrative expenses are avoidable if product B90D is
discontinued.
Required:
What would be the financial advantage (disadvantage) of dropping B90D? Should the product
be dropped?
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7) The Anaconda Mining Company currently is operating at less than 50 percent of practical
capacity. The management of the company expects sales to drop below the present level of
15,000 tons of ore per month very soon. The selling price per ton of ore is $2 and the variable
cost per ton is $1. Fixed costs per month total $15,000.
Management is concerned that a further drop in sales volume will generate a loss and,
accordingly, is considering the temporary suspension of operations until demand in the metals
markets returns to normal levels and prices rebound. Management has implemented a cost
reduction program over the past year that has been successful in reducing costs. Nevertheless,
suspension of operations appears to be the only viable alternative. Management estimates that
suspension of operations would reduce fixed costs from $15,000 to $5,000 per month.
Required:
a. Why does management estimate that fixed costs will persist at $5,000 per month even though
the mine is temporarily closed?
b. At what sales volume should management suspend operations at the mine?
8) Suire Corporation is considering dropping product D14E. Data from the company’s
accounting system appear below:
Sales $ 840,000
Variable expenses $ 421,000
Fixed manufacturing expenses $ 267,000
Fixed selling and administrative expenses $ 215,000
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All fixed expenses of the company are fully allocated to products in the company’s accounting
system. Further investigation has revealed that $204,500 of the fixed manufacturing expenses
and $119,500 of the fixed selling and administrative expenses are avoidable if product D14E is
discontinued.
Required:
a. According to the company’s accounting system, what is the net operating income earned by
product D14E?
b. What would be the financial advantage (disadvantage) of dropping product D14E? Should
the product be dropped?
9) Recher Corporation uses part Q89 in one of its products. The company’s Accounting
Department reports the following costs of producing the 7,400 units of the part that are needed
every year.
Per Unit
Direct materials $ 8.10
Direct labor $ 4.40
Variable overhead $ 8.60
Supervisor’s salary $ 3.20
Depreciation of special equipment $ 2.60
Allocated general overhead $ 1.30
An outside supplier has offered to make the part and sell it to the company for $27.60 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 $4,100 of these allocated
general overhead costs would be avoided. In addition, the space used to produce part Q89 could
be used to make more of one of the company’s other products, generating an additional segment
margin of $15,000 per year for that product.
Required:
a. Prepare a report that shows the financial impact of buying part Q89 from the supplier rather
than continuing to make it inside the company.
b. Which alternative should the company choose?
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10) Part U67 is used in one of Broce Corporation’s products. The company’s Accounting
Department reports the following costs of producing the 14,700 units of the part that are needed
every year.
Per Unit
Direct materials $ 1.60
Direct labor $ 2.60
Variable overhead $ 5.40
Supervisor’s salary $ 5.90
Depreciation of special equipment $ 7.00
Allocated general overhead $ 4.10
An outside supplier has offered to make the part and sell it to the company for $20.00 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 $20,700 of these allocated
general overhead costs would be avoided.
Required:
a. Prepare a report that shows the financial impact of buying part U67 from the supplier rather
than continuing to make it inside the company.
b. Which alternative should the company choose?
11) Janeiro Skate, Incorporated currently manufactures the wheels that it uses for its in-line
skates. The annual costs to manufacture the 150,000 wheels needed each year are as follows:
Total Cost
Direct materials $ 165,000
Direct labor 45,000
Variable manufacturing overhead 60,000
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Fixed manufacturing overhead 300,000
Total $ 570,000
Kasba Rubber Company has offered to provide Janeiro with all of its annual wheel needs for
$3.50 per wheel. If Janeiro accepts this offer, 75% of the fixed manufacturing overhead above
could be totally eliminated. Also, Janeiro would be able to rent out the freed up space and could
generate $72,000 of income annually. Assume that direct labor is a variable cost.
Required:
Based on this information, would Janeiro be financially better off to continue making the wheels
or to buy them from Kasba?
12) Foto Company makes 14,000 units per year of a part it uses in the products it
manufactures. The unit product cost of this part is computed as follows:
Direct materials $ 13.60
Direct labor 21.20
Variable manufacturing overhead 3.40
Fixed manufacturing overhead 11.30
Unit product cost $ 49.50
An outside supplier has offered to sell the company all of these parts it needs for $42.70 a unit. If
the company accepts this offer, the facilities now being used to make the part could be used to
make more units of a product that is in high demand. The additional contribution margin on this
other product would be $32,200 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part
would be avoided. However, $6.00 of the fixed manufacturing overhead cost being applied to the
part would continue even if the part were purchased from the outside supplier. This fixed
manufacturing overhead cost would be applied to the company’s remaining products.
Required:
a. How much of the unit product cost of $49.50 is relevant in the decision of whether to make
or buy the part? (Round “Per Unit” to 2 decimal places.)
b. What is the financial advantage (disadvantage) of purchasing the part rather than making it?
c. 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 14,000 units required each year? (Round
“Per Unit” to 2 decimal places.)
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13) Marsdon Company has an annual production capacity of 15,000 units. The costs
associated with production and sale of the company’s product are given below:
Manufacturing costs:
Variable $ 12 per unit
Fixed (annual cost) $ 90,000
Selling and administrative costs:
Variable (sales commissions) $ 3 per unit
Fixed (annual cost) $ 60,000
The company presently is selling 12,000 units annually at a selling price of $28 each. A special
order has been received from a distributor who wants to purchase 3,000 units at a special price of
$20 each. Regular sales would not be affected by this order and the order could be filled without
any impact on total fixed costs. Sales commissions on the special order would be reduced by
one-third.
Required:
Determine whether the company should accept the special order.
14) Mcniff Corporation makes a range of products. The company’s predetermined overhead
rate is $23 per direct labor-hour, which was calculated using the following budgeted data:
Variable manufacturing overhead $ 60,000
Fixed manufacturing overhead $ 400,000
Direct labor-hours 20,000
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Management is considering a special order for 770 units of product O96S at $71 each. The
normal selling price of product O96S is $82 and the unit product cost is determined as follows:
Direct materials $ 44.00
Direct labor 15.00
Manufacturing overhead applied 23.00
Unit product cost $ 82.00
If the special order were accepted, normal sales of this and other products would not be affected.
The company has ample excess capacity to produce the additional units. Assume that direct labor
is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and
total fixed manufacturing overhead would not be affected by the special order.
Required:
The financial advantage (disadvantage) for the company as a result of accepting this special
order would be:
15) Wehrs Corporation has received a request for a special order of 9,100 units of product
K19 for $46.00 each. The normal selling price of this product is $51.10 each, but the units would
need to be modified slightly for the customer. The normal unit product cost of product K19 is
computed as follows:
Direct materials $ 16.80
Direct labor 6.10
Variable manufacturing overhead 3.30
Fixed manufacturing overhead 6.20
Unit product cost $ 32.40
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 some modifications made to
product K19 that would increase the variable costs by $5.70 per unit and that would require a
one-time investment of $45,500 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.
Required:
Determine the effect on the company’s total net operating income of accepting the special
order.
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16) Kneller Corporation manufactures and sells medals for winners of athletic and other
events. Its manufacturing plant has the capacity to produce 15,000 medals each month; current
monthly production is 10,000 medals. The company normally charges $101 per medal. Cost data
for the current level of production are shown below:
Variable costs:
Direct materials $ 489,600
Direct labor $ 156,700
Selling and administrative $ 25,400
Fixed costs:
Manufacturing $ 146,600
Selling and administrative $ 80,200
The company has just received a special one-time order for 400 medals at $89 each. For this
particular order, no variable selling and administrative costs would be incurred. This order would
also have no effect on fixed costs. Assume that direct labor is a variable cost.
Required:
Should the company accept this special order?
17) Garson, Incorporated produces three products. Data concerning the selling prices and unit
costs of the three products appear below:
Product
F G H
Selling price $ 65 $ 45 $ 75
Variable costs $ 40 $ 30 $ 45
Fixed costs $ 25 $ 6 $ 22
Milling machine time (minutes) 10 2 3
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Fixed costs are applied to the products on the basis of direct labor hours.
Demand for the three products exceeds the company’s productive capacity. The milling
machine is the constraint, with only 2,600 minutes of milling machine time available this week.
Required:
a. Given the milling machine constraint, which product should be emphasized?
b. Assuming that there is still unfilled demand for the product that the company should
emphasize in part (a) above, up to how much should the company be willing to pay for an
additional hour of milling machine time?
18) Brissett Corporation makes three products that use the current constraint, which is a
particular type of machine. Data concerning those products appear below:
GK LQ XK
Selling price per unit $ 326.17 $ 543.43 $ 506.00
Variable cost per unit $ 252.02 $ 420.83 $ 397.68
Time on the constraint (minutes) 3.70 7.70 8.00
Required:
a. Rank the products in order of their current profitability from the most profitable to the least
profitable. In other words, rank the products in the order in which they should be emphasized.
b. Assume that sufficient constraint time is available 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? (Round your answer to 2 decimal places.)
19) Glover Company makes three products in a single facility. These products have the
following unit product costs:
Product
A B C
Direct materials $ 33.40 $ 49.90 $ 56.30
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Direct labor 20.80 23.40 14.20
Variable manufacturing overhead 1.80 1.20 0.30
Fixed manufacturing overhead 12.90 8.50 9.10
Unit product cost $ 68.90 $ 83.00 $ 79.90
Additional data concerning these products are listed below.
Product
A B C
Mixing minutes per unit 1.80 0.60 0.10
Selling price per unit $ 64.00 $ 86.40 $ 79.90
Variable selling cost per unit $ 1.20 $ 1.70 $ 1.70
Monthly demand in units 2,600 3,900 1,900
The mixing machines are potentially the constraint in the production facility. A total of 7,110
minutes are available per month on these machines.
Direct labor is a variable cost in this company.
Required:
a. How many minutes of mixing machine time would be required to satisfy demand for all
three products?
b. How much of each product should be produced to maximize net operating income? (Round
final answers to the nearest whole unit.)
c. Up to how much should the company be willing to pay for one additional hour of mixing
machine time if the company has made the best use of the existing mixing machine capacity?
(Round your intermediate calculations and final answer to 2 decimal places.)
20) Holton Company makes three products in a single facility. Data concerning these
products follow:
Product
A B C
Selling price per unit $ 73.70 $ 73.60 $ 89.30
Direct materials $ 32.10 $ 41.10 $ 53.70
Direct labor $ 23.20 $ 13.30 $ 9.20
Variable manufacturing overhead $ 4.40 $ 4.50 $ 4.30
Variable selling cost per unit $ 2.30 $ 3.30 $ 2.60
Mixing minutes per unit 4.10 2.50 2.50
Monthly demand in units 3,000 1,000 2,000
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The mixing machines are potentially the constraint in the production facility. A total of 14,000
minutes are available per month on these machines.
Direct labor is a variable cost in this company.
Required:
a. How many minutes of mixing machine time would be required to satisfy demand for all
three products?
b. How much of each product should be produced to maximize net operating income? (Round
final answers to the nearest whole unit.)
c. Up to how much should the company be willing to pay for one additional hour of mixing
machine time if the company has made the best use of the existing mixing machine capacity?
(Round your intermediate calculations and final answer to 2 decimal places.)
21) Farrugia Corporation produces two intermediate products, A and B, from a common
input. Intermediate product A can be further processed into Product X. Intermediate product B
can be further processed into Product Y. The common input is purchased in batches that cost $90
each and the cost of processing a batch to produce intermediate products A and B is $36.
Intermediate product A can be sold as is for $53 or processed further for $33 to make Product X
that is sold for $80. Intermediate product B can be sold as is for $113 or processed further for
$66 to make Product Y that is sold for $160.
Required:
a. Assuming that no other costs are involved in processing the common input or in selling
products, what is the profit (loss) from processing one batch of the common input into the
products X and Y?
b. What is the Financial advantage (disadvantage) from further processing? Should each of the
intermediate products, A and B, be sold as is or processed further?
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22) Swagger Corporation purchases potatoes from farmers. The potatoes are then peeled,
producing two intermediate products-peels and depeeled spuds. The peels can then be processed
further to make a cocktail of organic nutrients. And the depeeled spuds can be processed further
to make frozen french fries. A batch of potatoes costs $45 to buy from farmers and $13 to peel in
the company’s plant. The peels produced from a batch can be sold as is for animal feed for $27 or
processed further for $18 to make the cocktail of nutrients that are sold for $47. The depeeled
spuds can be sold as is for $38 or processed further for $27 to make frozen french fries that are
sold for $59.
Required:
a. Assuming that no other costs are involved in processing potatoes or in selling products, how
much money does the company make from processing one batch of potatoes into the cocktail of
organic nutrients and frozen french fries?
b. Should each of the intermediate products, peels and depeeled spuds, be sold as is or
processed further into an end product?
23) Benjamin Company produces products C, J, and R from a joint production process. Each
product may be sold at the split-off point or processed further. Joint production costs of $95,000
per year are allocated to the products based on the relative number of units produced. Data for
Benjamin’s operations for last year follow:
Units Produced Sales Values at Split-Off Sales Values If
Processed Further Costs of Processing Further
Product C 6,000 $ 75,000 $ 100,000 $ 20,000
Product J 9,000 $ 70,000 $ 115,000 $ 36,000
Product R 4,000 $ 46,500 $ 55,000 $ 10,000
Required:
Which products should be processed beyond the split-off point?
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24) Ibsen Company makes two products from a common input. Joint processing costs up to
the split-off point total $45,000 a year. The company allocates these costs to the joint products on
the basis of their total sales values at the split-off point. Each product may be sold at the split-off
point or processed further. Data concerning these products appear below:
Product X Product Y Total
Allocated joint processing costs $ 18,000 $ 27,000 $ 45,000
Sales value at split-off point $ 20,000 $ 30,000 $ 50,000
Costs of further processing $ 24,100 $ 18,400 $ 42,500
Sales value after further processing $ 37,600 $ 58,100 $ 95,700
Required:
a. What is financial advantage (disadvantage) of processing Product X beyond the split-off
point?
b. What is financial advantage (disadvantage) of processing Product Y beyond the split-off
point?
c. What is the minimum amount the company should accept for Product X if it is to be sold at
the split-off point?
d. What is the minimum amount the company should accept for Product Y if it is to be sold at
the split-off point?
25) Costs associated with two alternatives, code-named Q and R, being considered by
Albiston Corporation are listed below:
Alternative Q Alternative R
Supplies costs $ 65,000 $ 65,000
Power costs $ 30,000 $ 29,000
Inspection costs $ 18,000 $ 29,000
Assembly costs $ 33,000 $ 33,000
Required:
a. Which costs are relevant and which are not relevant in the choice between these two
alternatives?
b. What is the differential cost between the two alternatives?
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26) Saalfrank Corporation is considering two alternatives that are code-named M and N.
Costs associated with the alternatives are listed below:
Alternative M Alternative N
Supplies costs $ 43,000 $ 53,000
Assembly costs $ 43,000 $ 56,000
Power costs $ 26,000 $ 26,000
Inspection costs $ 19,000 $ 26,000
Required:
a. Which costs are relevant and which are not relevant in the choice between these two
alternatives?
b. What is the differential cost between the two alternatives?
27) The management of Wengel Corporation is considering dropping product B90D. Data
from the company’s accounting system appear below:
Sales $ 720,000
Variable expenses $ 374,000
Fixed manufacturing expenses $ 245,000
Fixed selling and administrative expenses $ 209,000
All fixed expenses of the company are fully allocated to products in the company’s accounting
system. Further investigation has revealed that $173,000 of the fixed manufacturing expenses
and $150,000 of the fixed selling and administrative expenses are avoidable if product B90D is
discontinued.
Required:
What would be the financial advantage (disadvantage) of dropping B90D? Should the product
be dropped?
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28) The management of Schmader Corporation is considering dropping product M12C. Data
from the company’s accounting system appear below:
Sales $ 550,000
Variable expenses $ 242,000
Fixed manufacturing expenses $ 215,000
Fixed selling and administrative expenses $ 132,000
All fixed expenses of the company are fully allocated to products in the company’s accounting
system. Further investigation has revealed that $137,000 of the fixed manufacturing expenses
and $79,000 of the fixed selling and administrative expenses are avoidable if product M12C is
discontinued.
Required:
a. What is the net operating income earned by product M12C according to the company’s
accounting system?
b. Determine the financial advantage (disadvantage) for the company of dropping product
M12C. Should the product be dropped?
29) Suire Corporation is considering dropping product D14E. Data from the company’s
accounting system appear below:
Sales $ 340,000
Variable expenses $ 156,000
Fixed manufacturing expenses $ 116,000
Fixed selling and administrative expenses $ 75,000
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All fixed expenses of the company are fully allocated to products in the company’s accounting
system. Further investigation has revealed that $72,000 of the fixed manufacturing expenses and
$48,000 of the fixed selling and administrative expenses are avoidable if product D14E is
discontinued.
Required:
a. According to the company’s accounting system, what is the net operating income earned by
product D14E?
b. What would be the financial advantage (disadvantage) of dropping product D14E? Should
the product be dropped?
30) Kirsten Corporation makes 100,000 units per year of a part called a B345 gasket for use
in one of its products. Data concerning the unit production costs of the B345 gasket follow:
Direct materials $ 0.15
Direct labor 0.10
Variable manufacturing overhead 0.13
Fixed manufacturing overhead 0.24
Total manufacturing cost per unit $ 0.62
An outside supplier has offered to sell Kirsten Corporation all of the B345 gaskets it requires. If
Kirsten Corporation decided to discontinue making the B345 gaskets, 25% of the above fixed
manufacturing overhead costs could be avoided. Assume that direct labor is a variable cost.
Required:
a. Assume Kirsten Corporation has no alternative use for the facilities presently devoted to
production of the B345 gaskets. If the outside supplier offers to sell the gaskets for $0.46 each,
should Kirsten Corporation accept the offer? Fully support your answer with appropriate
calculations.
b. Assume that Kirsten Corporation could use the facilities presently devoted to production of
the B345 gaskets to expand production of another product that would yield an additional
contribution margin of $10,000 annually. What is the maximum price Kirsten Corporation
should be willing to pay the outside supplier for B345 gaskets?
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31) Gottshall Incorporated makes a range of products. The company’s predetermined
overhead rate is $19 per direct labor-hour, which was calculated using the following budgeted
data:
Variable manufacturing overhead $ 225,000
Fixed manufacturing overhead $ 630,000
Direct labor-hours 45,000
Component P0 is used in one of the company’s products. The unit cost of the component
according to the company’s cost accounting system is determined as follows:
Direct materials $ 21.00
Direct labor 40.80
Manufacturing overhead applied 32.30
Unit product cost $ 94.10
An outside supplier has offered to supply component P0 for $78 each. The outside supplier is
known for quality and reliability. Assume that direct labor is a variable cost, variable
manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing
overhead would not be affected by this decision. Gottshall chronically has idle capacity.
Required:
Is the offer from the outside supplier financially attractive?
32) Part U67 is used in one of Broce Corporation’s products. The company’s Accounting
Department reports the following costs of producing the 7,000 units of the part that are needed
every year.
Per Unit
Direct materials $ 8.70
Direct labor $ 2.70
Variable overhead $ 3.30
Supervisor’s salary $ 1.90
Depreciation of special equipment $ 1.80
Allocated general overhead $ 5.50
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An outside supplier has offered to make the part and sell it to the company for $21.40 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.
Required:
a. Prepare a report that shows the financial impact of buying part U67 from the supplier rather
than continuing to make it inside the company.
b. Which alternative should the company choose?
33) McGraw Company uses 5,000 units of Part X each year as a component in the assembly
of one of its products. The company is presently producing Part X internally at a total cost of
$100,000, computed as follows:
Direct materials $ 15,000
Direct labor 30,000
Variable manufacturing overhead 10,000
Fixed manufacturing overhead 45,000
Total cost $ 100,000
An outside supplier has offered to provide Part X at a price of $18 per unit. If McGraw Company
stops producing the part internally, one-third of the fixed manufacturing overhead would be
eliminated. Assume that direct labor is a variable cost.
Required:
Prepare an analysis showing the annual financial advantage or disadvantage of accepting the
outside supplier’s offer.
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34) Foto Company makes 50,000 units per year of a part it uses in the products it
manufactures. The unit product cost of this part is computed as follows:
Direct materials $ 12.00
Direct labor 10.10
Variable manufacturing overhead 2.00
Fixed manufacturing overhead 14.10
Unit product cost $ 38.20
An outside supplier has offered to sell the company all of these parts it needs for $37.30 a unit. If
the company accepts this offer, the facilities now being used to make the part could be used to
make more units of a product that is in high demand. The additional contribution margin on this
other product would be $310,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part
would be avoided. However, $9.70 of the fixed manufacturing overhead cost being applied to the
part would continue even if the part were purchased from the outside supplier. This fixed
manufacturing overhead cost would be applied to the company’s remaining products.
Required:
a. How much of the unit product cost of $38.20 is relevant in the decision of whether to make
or buy the part?
b. What is the financial advantage (disadvantage) of purchasing the part rather than making it?
c. 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 50,000 units required each year?
35) Mcniff Corporation makes a range of products. The company’s predetermined overhead
rate is $28 per direct labor-hour, which was calculated using the following budgeted data:
Variable manufacturing overhead $ 180,000
Fixed manufacturing overhead $ 380,000
Direct labor-hours 20,000
Management is considering a special order for 200 units of product O96S at $122 each. The
normal selling price of product O96S is $149 and the unit product cost is determined as follows:
Direct materials $ 67.00
Direct labor 32.00
Manufacturing overhead applied 44.80
Unit product cost $ 143.80
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If the special order were accepted, normal sales of this and other products would not be affected.
The company has ample excess capacity to produce the additional units. Assume that direct labor
is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and
total fixed manufacturing overhead would not be affected by the special order.
Required:
The financial advantage (disadvantage) for the company as a result of accepting this special
order would be:
36) Anglen Company manufactures and sells trophies for winners of athletic and other
events. Its manufacturing plant has the capacity to produce 18,000 trophies each month; current
monthly production is 14,400 trophies. The company normally charges $103 per trophy. Cost
data for the current level of production are shown below:
Variable costs:
Direct materials $ 460,800
Direct labor $ 316,800
Selling and administrative $ 15,840
Fixed costs:
Manufacturing $ 404,640
Selling and administrative $ 74,880
The company has just received a special one-time order for 900 trophies at $48 each. For this
particular order, no variable selling and administrative costs would be incurred. This order would
also have no effect on fixed costs. Assume that direct labor is a variable cost.
Required:
Should the company accept this special order? Why?
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37) Wehrs Corporation has received a request for a special order of 6,000 units of product
K19 for $32.30 each. The normal selling price of this product is $33.45 each, but the units would
need to be modified slightly for the customer. The normal unit product cost of product K19 is
computed as follows:
Direct materials $ 15.00
Direct labor 3.80
Variable manufacturing overhead 1.40
Fixed manufacturing overhead 2.10
Unit product cost $ 22.30
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 some modifications made to
product K19 that would increase the variable costs by $4.90 per unit and that would require a
one-time 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.
Required:
Determine the effect on the company’s total net operating income of accepting the special
order.
38) Juliani Company produces a single product. The cost of producing and selling a single
unit of this product at the company’s normal activity level of 50,000 units per month is as
follows:
Direct materials $ 32.50
Direct labor $ 7.20
Variable manufacturing overhead $ 1.30
Fixed manufacturing overhead $ 20.90
Variable selling & administrative expense $ 1.90
Fixed selling & administrative expense $ 7.30
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The normal selling price of the product is $75.00 per unit.
An order has been received from an overseas customer for 3,000 units to be delivered this
month at a special discounted price. This order would have no effect on the company’s normal
sales and would not change the total amount of the company’s fixed costs. The variable selling
and administrative expense would be $0.30 less per unit on this order than on normal sales.
Direct labor is a variable cost in this company.
Required:
a. 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 $65.60 per unit. What is the financial
advantage (disadvantage) for the company next month if it accepts the special order?
b. Suppose the company is already operating at capacity when the special order is received
from the overseas customer. What would be the opportunity cost of each unit delivered to the
overseas customer?
c. 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 1,000 units
for regular customers. What would be the minimum acceptable price per unit for the special
order?
39) A customer has asked Lalka Corporation to supply 3,000 units of product H60, with some
modifications, for $34.70 each. The normal selling price of this product is $46.35 each. The
normal unit product cost of product H60 is computed as follows:
Direct materials $ 14.70
Direct labor 1.30
Variable manufacturing overhead 7.00
Fixed manufacturing overhead 7.90
Unit product cost $ 30.90
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 some modifications made to
product H60 that would increase the variable costs by $3.80 per unit and that would require a
one-time investment of $24,000 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.
Required:
Determine the financial advantage or disadvantage of accepting the special order.
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40) Kneller Company manufactures and sells medals for winners of athletic and other events.
Its manufacturing plant has the capacity to produce 12,000 medals each month; current monthly
production is 9,600 medals. The company normally charges $99 per medal. Cost data for the
current level of production are shown below:
Variable costs:
Direct materials $ 480,000
Direct labor $ 153,600
Selling and administrative $ 24,960
Fixed costs:
Manufacturing $ 144,000
Selling and administrative $ 78,720
The company has just received a special one-time order for 500 medals at $89 each. For this
particular order, no variable selling and administrative costs would be incurred. This order would
also have no effect on fixed costs. Assume that direct labor is a variable cost.
Required:
Should the company accept this special order? Why?
41) Garson, Incorporated produces three products. Data concerning the selling prices and unit
costs of the three products appear below:
Product
F G H
Selling price $ 50 $ 80 $ 70
Variable costs $ 40 $ 50 $ 55
Fixed costs $ 15 $ 20 $ 12
Milling machine time (minutes) 4 2 5
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Fixed costs are applied to the products on the basis of direct labor hours.
Demand for the three products exceeds the company’s productive capacity. The milling
machine is the constraint, with only 2,400 minutes of milling machine time available this week.
Required:
a. Given the milling machine constraint, which product should be emphasized?
b. Assuming that there is still unfilled demand for the product that the company should
emphasize in part (a) above, up to how much should the company be willing to pay for an
additional hour of milling machine time?
42) Brissett Corporation makes three products that use the current constraint, which is a
particular type of machine. Data concerning those products appear below:
GK LQ XK
Selling price per unit $ 119.51 $ 226.07 $ 228.96
Variable cost per unit $ 89.87 $ 176.86 $ 178.92
Time on the constraint (minutes) 1.90 3.70 3.60
Required:
a. Rank the products in order of their current profitability from the most profitable to the least
profitable. In other words, rank the products in the order in which they should be emphasized.
b. Assume that sufficient constraint time is available 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?
43) Glover Company makes three products in a single facility. These products have the
following unit product costs:
Product
A B C
Direct materials $ 15.80 $ 11.00 $ 14.10
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Direct labor 19.10 17.20 20.30
Variable manufacturing overhead 2.60 3.10 3.30
Fixed manufacturing overhead 21.60 24.10 31.30
Unit product cost $ 59.10 $ 55.40 $ 69.00
Additional data concerning these products are listed below.
Product
A B C
Mixing minutes per unit 3.30 2.60 3.10
Selling price per unit $ 74.30 $ 66.40 $ 81.00
Variable selling cost per unit $ 2.80 $ 2.30 $ 1.90
Monthly demand in units 2,000 1,000 1,000
The mixing machines are potentially the constraint in the production facility. A total of 10,900
minutes are available per month on these machines.
Direct labor is a variable cost in this company.
Required:
a. How many minutes of mixing machine time would be required to satisfy demand for all
three products?
b. How much of each product should be produced to maximize net operating income? (Round
off to the nearest whole unit.)
c. Up to how much should the company be willing to pay for one additional hour of mixing
machine time if the company has made the best use of the existing mixing machine capacity?
(Round off to the nearest whole cent.)
44) Holton Company makes three products in a single facility. Data concerning these
products follow:
Product
A B C
Selling price per unit $ 76.10 $ 72.70 $ 77.10
Direct materials $ 33.10 $ 40.60 $ 46.40
Direct labor $ 24.00 $ 13.10 $ 7.20
Variable manufacturing overhead $ 4.60 $ 4.40 $ 3.30
Variable selling cost per unit $ 1.60 $ 3.20 $ 2.00
Mixing minutes per unit 2.80 1.90 2.60
Monthly demand in units 3,000 1,000 2,000
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The mixing machines are potentially the constraint in the production facility. A total of 14,700
minutes are available per month on these machines.
Direct labor is a variable cost in this company.
Required:
a. How many minutes of mixing machine time would be required to satisfy demand for all
three products?
b. How much of each product should be produced to maximize net operating income? (Round
off to the nearest whole unit.)
c. Up to how much should the company be willing to pay for one additional hour of mixing
machine time if the company has made the best use of the existing mixing machine capacity?
(Round off to the nearest whole cent.)
45) The constraint at Dreyfus Incorporated is an expensive milling machine. The three
products listed below use this constrained resource.
VY QX AM
Selling price per unit $ 78.65 $ 421.59 $ 145.92
Variable cost per unit $ 62.40 $ 331.20 $ 113.28
Time on the constraint (minutes) 1.30 6.90 2.40
Required:
a. Rank the products in order of their current profitability from the most profitable to the least
profitable. In other words, rank the products in the order in which they should be emphasized.
b. Assume that sufficient constraint time is available 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?
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46) Farrugia Corporation produces two intermediate products, A and B, from a common
input. Intermediate product A can be further processed into Product X. Intermediate product B
can be further processed into Product Y. The common input is purchased in batches that cost $36
each and the cost of processing a batch to produce intermediate products A and B is $15.
Intermediate product A can be sold as is for $21 or processed further for $14 to make Product X
that is sold for $32. Intermediate product B can be sold as is for $44 or processed further for $28
to make Product Y that is sold for $64.
Required:
a. Assuming that no other costs are involved in processing the common input or in selling
products, what is the profit (loss) from processing one batch of the common input into the
products X and Y?
b. Should each of the intermediate products, A and B, be sold as is or processed further?
47) Prosner Corporation manufactures three products from a common input in a joint
processing operation. Joint processing costs up to the split-off point total $500,000 per year. The
company allocates these costs to the joint products on the basis of their total sales value at the
split-off point.
Each product may be sold at the split-off point or processed further. The additional processing
costs and sales value after further processing for each product (on an annual basis) are:
Sales Value at Split-Off Further Processing Costs Sales Value
After Further Processing
Product D $ 300,000 $ 125,000 $ 534,000
Product F $ 275,000 $ 210,000 $ 450,000
Product G $ 195,000 $ 135,000 $ 360,000
Required:
Which product or products should be sold at the split-off point, and which product or products
should be processed further?
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48) Swagger Corporation purchases potatoes from farmers. The potatoes are then peeled,
producing two intermediate products-peels and depeeled spuds. The peels can then be processed
further to make a cocktail of organic nutrients. And the depeeled spuds can be processed further
to make frozen french fries. A batch of potatoes costs $63 to buy from farmers and $12 to peel in
the company’s plant. The peels produced from a batch can be sold as is for animal feed for $29 or
processed further for $15 to make the cocktail of nutrients that are sold for $41. The depeeled
spuds can be sold as is for $40 or processed further for $22 to make frozen french fries that are
sold for $77.
Required:
a. Assuming that no other costs are involved in processing potatoes or in selling products, how
much money does the company make from processing one batch of potatoes into the cocktail of
organic nutrients and frozen french fries?
b. Should each of the intermediate products, peels and depeeled spuds, be sold as is or
processed further into an end product?
49) Bowen Company produces products P, Q, and R from a joint production process. Each
product may be sold at the split-off point or be processed further. Joint production costs of
$81,000 per year are allocated to the products based on the relative number of units produced.
Data for Bowen’s operations for the current year are as follows:
Units Produced Allocated Joint Production Cost Sales Value at
Split-off
Product P 4,000 $ 28,000 $ 38,000
Product Q 7,000 $ 49,000 $ 47,000
Product R 2,000 $ 14,000 $ 16,000
Product P can be processed beyond the split-off point for an additional cost of $10,000 and can
then be sold for $50,000. Product Q can be processed beyond the split-off point for an additional
cost of $35,000 and can then be sold for $65,000. Product R can be processed beyond the split-
off point for an additional cost of $6,000 and can then be sold for $25,000.
Required:
Which products should be processed beyond the split-off point?
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50) Ibsen Company makes two products from a common input. Joint processing costs up to
the split-off point total $43,200 a year. The company allocates these costs to the joint products on
the basis of their total sales values at the split-off point. Each product may be sold at the split-off
point or processed further. Data concerning these products appear below:
Product X Product Y Total
Allocated joint processing costs $ 25,600 $ 17,600 $ 43,200
Sales value at split-off point $ 32,000 $ 22,000 $ 54,000
Costs of further processing $ 15,900 $ 17,400 $ 33,300
Sales value after further processing $ 47,500 $ 40,800 $ 88,300
Required:
a. What is financial advantage (disadvantage) of processing Product X beyond the split-off
point?
b. What is financial advantage (disadvantage) of processing Product Y beyond the split-off
point?
c. What is the minimum amount the company should accept for Product X if it is to be sold at
the split-off point?
d. What is the minimum amount the company should accept for Product Y if it is to be sold at
the split-off point?
51) Which of the following would be relevant in the decision to sell or throw out obsolete
inventory?
Direct material cost assigned to the inventory Fixed overhead cost
assigned to the inventory
A) Yes Yes
B) Yes No
C) No Yes
D) No No
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A) Choice A
B) Choice B
C) Choice C
D) Choice D
52) The opportunity cost of making a component part in a factory with excess capacity for
which there is no alternative use is:
A) the variable manufacturing cost of the component.
B) the total manufacturing cost of the component.
C) the fixed manufacturing cost of the component.
D) zero.
53) Which of the following costs are always irrelevant in decision making?
A) avoidable costs
B) sunk costs
C) opportunity costs
D) fixed costs
54) Costs that can be eliminated in whole or in part if a particular business segment is
discontinued are called:
A) sunk costs.
B) opportunity costs.
C) avoidable costs.
D) irrelevant costs.
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55) The Jabba Corporation manufactures the “Snack Buster” which consists of a wooden
snack chip bowl with an attached porcelain dip bowl. Which of the following would be relevant
in Jabba’s decision to make the dip bowls or buy them from an outside supplier?
Fixed overhead cost that can be eliminated if the bowls are
purchased from the outside supplier The variable selling cost of the
Snack Buster
A) Yes Yes
B) Yes No
C) No Yes
D) No No
A) Choice A
B) Choice B
C) Choice C
D) Choice D
56) Accepting a special order will improve overall net operating income if the revenue from
the special order exceeds:
A) the contribution margin on the order.
B) the incremental costs associated with the order.
C) the variable costs associated with the order.
D) the sunk costs associated with the order.
57) Kinsi Corporation manufactures five different products. All five of these products must
pass through a stamping machine in its fabrication department. This machine is Kinsi’s
constrained resource. Kinsi would make the most profit if it produces the product that:
A) uses the least amount of stamping time.
B) generates the highest contribution margin per unit.
C) generates the highest contribution margin ratio.
D) generates the highest contribution margin per stamping machine hour.
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58) United Industries manufactures a number of products at its highly automated factory. The
products are very popular, with demand far exceeding the factory’s capacity. To maximize profit,
management should rank products based on their:
A) gross margin
B) contribution margin
C) selling price
D) contribution margin per unit of the constrained resource
59) A joint product is:
A) any product which consists of several parts.
B) any product produced by a company with more than one product line.
C) any product involved in a make or buy decision.
D) one of several products produced from a common input.
60) In a sell or process further decision, consider the following costs:
1. A variable production cost incurred prior to split-off.
2. A variable production cost incurred after split-off.
3. An avoidable fixed production cost incurred after split-off.
Which of the above costs is (are) not relevant in a decision regarding whether the product
should be processed further?
A) Only I
B) Only III
C) Only I and II
D) Only I and III
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61) Product X-547 is one of the joint products in a joint manufacturing process. Management
is considering whether to sell X-547 at the split-off point or to process X-547 further into
Xylene. The following data have been gathered:
1. Selling price of X-547
2. Variable cost of processing X-547 into Xylene.
3. The avoidable fixed costs of processing X-547 into Xylene.
4. The selling price of Xylene.
5. The joint cost of the process from which X-547 is produced.
Which of the above items are relevant in a decision of whether to sell the X-547 as is or
process it further into Xylene?
A) I, II, and IV.
B) I, II, III, and IV.
C) II, III, and V.
D) I, II, III, and V.
62) Hodge Incorporated has some material that originally cost $74,600. The material has a
scrap value of $57,400 as is, but if reworked at a cost of $1,500, it could be sold for $54,400.
What would be the financial advantage (disadvantage) of reworking and selling the material
rather than selling it as is as scrap?
A) ($79,100)
B) ($21,700)
C) ($4,500)
D) $52,900
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63) Hamby Corporation is preparing a bid for a special order that would require 780 liters of
material W34C. The company already has 640 liters of this raw material in stock that originally
cost $8.30 per liter. Material W34C is used in the company’s main product and is replenished on
a periodic basis. The resale value of the existing stock of the material is $7.60 per liter. New
stocks of the material can be readily purchased for $8.35 per liter. What is the relevant cost of the
780 liters of the raw material when deciding how much to bid on the special order?
A) $6,481
B) $6,376
C) $6,513
D) $5,928
64) Munafo 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 6,500 units of component VGI. Each unit of VGI requires 1 unit of
material I57 and 5 units of material M97. Data concerning these two materials follow:
Material Units in Stock Original Cost Per Unit Current Market
Price Per Unit Disposal Value Per Unit
I57 2,400 $ 9.10 $ 9.40 $ 8.95
M97 33,960 $ 4.70 $ 4.70 $ 3.50
Material I57 is in use in many of the company’s products and is routinely replenished. Material
M97 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 VGI?
A) $174,850
B) $213,130
C) $213,850
D) $171,925
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65) Otool Incorporated is considering using stocks of an old raw material in a special project.
The special project would require all 160 kilograms of the raw material that are in stock and that
originally cost the company $2,386 in total. If the company were to buy new supplies of this raw
material on the open market, it would cost $7 per kilogram. However, the company has no other
use for this raw material and would sell it at the discounted price of $6.45 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 $70 for all 160 kilograms. What is the relevant cost of the 160
kilograms of the raw material when deciding whether to proceed with the special project?
A) $1,032
B) $962
C) $1,123
D) $1,144
66) Otool Incorporated 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
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67) 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? (Round your intermediate calculations to 2
decimal places.)
A) $0.88 per kilogram
B) $3.03 per kilogram
C) $4.57 per kilogram
D) $3.91 per kilogram
68) Schickel Incorporated regularly uses material B39U and currently has in stock 459 liters
of the material for which it paid $2,621 several weeks ago. If this were to be sold as is on the
open market as surplus material, it would fetch $5.24 per liter. New stocks of the material can be
purchased on the open market for $5.84 per liter, but it must be purchased in lots of 1,000 liters.
You have been asked to determine the relevant cost of 600 liters of the material to be used in a
job for a customer. The relevant cost of the 600 liters of material B39U is:
A) $5,840
B) $3,144
C) $3,229
D) $3,504
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69) Schickel Incorporated 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
70) 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.
71) 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
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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
72) Lusk Corporation produces and sells 14,600 units of Product X each month. The selling
price of Product X is $28 per unit, and variable expenses are $22 per unit. A study has been
made concerning whether Product X should be discontinued. The study shows that $74,000 of
the $101,000 in monthly fixed expenses charged to Product X would not be avoidable even if the
product was discontinued. If Product X is discontinued, the monthly financial advantage
(disadvantage) for the company of eliminating this product should be:
A) ($60,600)
B) $13,400
C) $40,400
D) ($40,400)
73) 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 monthly financial advantage
(disadvantage) for the company of eliminating this product should be:
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A) ($30,000)
B) $30,000
C) $40,000
D) ($40,000)
74) 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)
75) The Cook Corporation has two divisions—East and West. The divisions have the
following revenues and expenses:
East West
Sales $ 602,000 $ 505,000
Variable costs 230,000 299,000
Traceable fixed costs 150,500 191,000
Allocated common corporate costs 127,600 155,000
Net operating income (loss) $ 93,900 $ (140,000)
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:
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A) $93,900
B) $(61,100)
C) $(140,000)
D) $(46,100)
76) 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)
77) 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)
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78) 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, $17,500 cannot be
avoided. The annual financial advantage (disadvantage) for the company of eliminating this
department would be:
A) ($35,000)
B) $35,000
C) ($17,500)
D) $17,500
79) 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)
80) The management of Furrow Corporation is considering dropping product L07E. Data
from the company’s budget for the upcoming year appear below:
Sales $ 910,000
Variable expenses $ 387,000
Fixed manufacturing expenses $ 369,000
Fixed selling and administrative expenses $ 249,000
In the company’s accounting system all fixed expenses of the company are fully allocated to
products. Further investigation has revealed that $231,000 of the fixed manufacturing expenses
and $192,000 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:
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A) $(95,000)
B) $100,000
C) $95,000
D) $(100,000)
81) 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
82) 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
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83) 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
84) 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)
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85) 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
86) 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)
87) 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
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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)
88) 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)
89) 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
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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
90) 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)
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91) 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
92) The SP Corporation makes 36,000 motors to be used in the production of its sewing
machines. The average cost per motor at this level of activity is:
Direct materials $ 9.50
Direct labor $ 8.50
Variable manufacturing overhead $ 3.45
Fixed manufacturing overhead $ 4.40
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 $23.95. 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:
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A) ($68,400)
B) $214,200
C) 90,000
D) $158,400
93) 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
94) Part U16 is used by Mcvean Corporation to make one of its products. A total of 15,000
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 $ 3.30
Direct labor $ 7.90
Variable manufacturing overhead $ 8.40
Supervisor’s salary $ 3.80
Depreciation of special equipment $ 2.20
Allocated general overhead $ 7.40
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An outside supplier has offered to make the part and sell it to the company for $26.30 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 $27,000 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) ($16,500)
B) ($66,000)
C) $27,000
D) ($124,500)
95) 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:
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A) $25,000
B) ($79,000)
C) ($35,400)
D) $14,600
96) Sardi Incorporated is considering whether to continue to make a component or to buy it
from an outside supplier. The company uses 11,700 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 $ 7.50
Direct labor 4.50
Variable manufacturing overhead 0.30
Fixed manufacturing overhead 2.30
Unit product cost $ 14.60
Assume that direct labor is a variable cost. Of the fixed manufacturing overhead, 30% 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 $3.90 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? (Round your intermediate
calculations to 2 decimal places.)
A) $16.55 per unit
B) $16.25 per unit
C) $12.99 per unit
D) $14.94 per unit
97) Sardi Incorporated 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
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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? (Round your intermediate
calculations to 2 decimal places.)
A) $24.21 per unit
B) $25.50 per unit
C) $20.71 per unit
D) $22.00 per unit
98) 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)
99) Supler Corporation produces a part used in the manufacture of one of its products. The
unit product cost is $21, computed as follows:
Direct materials $ 8
Direct labor 5
Variable manufacturing overhead 3
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Fixed manufacturing overhead 5
Unit product cost $ 21
An outside supplier has offered to provide the annual requirement of 2,900 of the parts for only
$16 each. The company estimates that 80% 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) ($3) per unit on average
B) $3 per unit on average
C) $4 per unit on average
D) ($5) per unit on average
100) 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
101) 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
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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)
102) A customer has requested that Lewelling Corporation fill a special order for 3,200 units
of product S47 for $28 a unit. While the product would be modified slightly for the special order,
product S47’s normal unit product cost is $23.50:
Direct materials $ 6.80
Direct labor 4.00
Variable manufacturing overhead 3.90
Fixed manufacturing overhead 8.80
Unit product cost $ 23.50
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 $2.40 per unit and that would
require an investment of $12,000.00 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:
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A) $22,880
B) ($11,700)
C) $12,200
D) ($3,000)
103) 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)
104) Gallerani Corporation has received a request for a special order of 5,500 units of product
A90 for $27.40 each. Product A90’s unit product cost is $27.15, determined as follows:
Direct materials $ 2.80
Direct labor 8.10
Variable manufacturing overhead 7.20
Fixed manufacturing overhead 9.05
Unit product cost $ 27.15
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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 $3.80 per unit and that would
require an investment of $27,000 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) $(46,525)
B) $3,250
C) $1,375
D) $(82,225)
105) 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
106) Landor Appliance Corporation makes and sells electric fans. Each fan regularly sells for
$32. The following cost data per fan is based on a full capacity of 160,000 fans produced each
period.
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Direct materials $ 9
Direct labor $ 9
Manufacturing overhead (50% variable and 50% unavoidable fixed) $ 6
A special order has been received by Landor for a sale of 30,000 fans to an overseas customer.
The only selling costs that would be incurred on this order would be $3 per fan for shipping.
Landor is now selling 130,000 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) $24 per fan
B) $28 per fan
C) $22 per fan
D) $21 per fan
107) 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
108) 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
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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. (Round your
intermediate calculations to 2 decimal places.)
A) WX, VP, YI
B) YI, VP, WX
C) WX, YI, VP
D) VP, WX, YI
109) 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
110) 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.
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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
111) 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 $ 167.16 $ 301.50 $ 417.57
Variable cost per unit $ 97.16 $ 196.29 $ 320.72
Minutes on the constraint 3.50 6.30 6.50
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.(Round your
intermediate calculations to 2 decimal places.)
A) LN, JQ, RQ
B) RQ, LN, JQ
C) RQ, JQ, LN
D) JQ, RQ, LN
112) 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.(Round your
intermediate calculations to 2 decimal places.)
A) LN, JQ, RQ
B) RQ, LN, JQ
C) RQ, JQ, LN
D) JQ, RQ, LN
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113) 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
114) Holden Corporation produces three products, with costs and selling prices as follows:
Product A Product B Product C
Selling price per unit $ 30 100% $ 20 100% $ 15 100%
Variable costs per unit 18 60% 15 75% 6 40%
Contribution margin per unit $ 12 40% $ 5 25% $ 9 60%
A particular machine is the bottleneck. On that machine, 3 machine hours are required to
produce each unit of Product A, 1 hour is required to produce each unit of Product B, and 2
hours are required to produce each unit of Product C. Rank the products from the most profitable
to the least profitable use of the constrained resource (bottleneck). (Round your intermediate
calculations to 2 decimal places.)
A) C, A, B
B) A, C, B
C) B, C, A
D) B, A, C
115) Consider the following production and cost data for two products, L and C:
Product L Product C
Contribution margin per unit $ 120 $ 112
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Machine minutes needed per unit 10 minutes 8 minutes
A total of 60,000 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) $720,000
B) $840,000
C) $780,000
D) $1,560,000
116) The constraint at Rauchwerger Corporation is time on a particular machine. The company
makes three products that use this machine. Data concerning those products appear below:
WX KD FS
Selling price per unit $ 335.01 $ 228.29 $ 199.04
Variable cost per unit $ 259.60 $ 173.42 $ 159.95
Minutes on the constraint 5.80 4.10 3.80
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? (Round your intermediate calculations to 2 decimal
places.)
A) $75.41 per minute
B) $39.09 per minute
C) $10.29 per minute
D) $13.38 per minute
117) The constraint at Rauchwerger Corporation is time on a particular machine. The company
makes three products that use this machine. Data concerning those products appear below:
WX KD FS
Selling price per unit $ 192.00 $ 542.66 $ 222.84
Variable cost per unit $ 158.72 $ 420.54 $ 167.76
Minutes on the constraint 3.20 8.60 3.60
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? (Round your intermediate calculations to 2 decimal
places.)
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A) $33.28 per unit
B) $10.40 per minute
C) $122.12 per unit
D) $15.30 per minute
118) Paine Corporation processes sugar beets in batches that it purchases from farmers for $72
a batch. A batch of sugar beets costs $11 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 $16 to make the end product industrial fiber that is sold for
$40. The beet juice can be sold as is for $43 or processed further for $28 to make the end product
refined sugar that is sold for $100. Which of the intermediate products should be processed
further?
A) beet fiber should NOT be processed into industrial fiber; beet juice should be
processed into refined sugar
B) beet fiber should NOT be processed into industrial fiber; beet juice should NOT be
processed into refined sugar
C) beet fiber should be processed into industrial fiber; beet juice should NOT be
processed into refined sugar
D) beet fiber should be processed into industrial fiber; beet juice should be processed
into refined sugar
119) Cybil Baunt just inherited a 1958 Chevy Impala from her late Aunt Joop. Aunt Joop
purchased the car 40 years ago for $8,000. Cybil is either going to sell the car for $10,000 or
have it restored and then sell it for $22,000. The restoration will cost $9,000. Cybil would be
financially better off by:
A) $3,000 to have the vehicle restored
B) $6,000 to have the vehicle restored
C) $9,000 to have the vehicle restored
D) $11,000 to have the vehicle restored
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120) The Freed Corporation produces three products, X, Y, Z, from a single raw material
input. Product Y can be sold at the split-off point for total annual revenues of $50,000, or it can
be processed further at a total annual cost of $16,000 and then sold for $68,000. Which of the
following statements is true concerning Product Y?
A) Product Y should be sold at the split-off point rather than processed further.
B) The annual financial advantage from processing Product Y further is $18,000.
C) The annual financial advantage from processing Product Y further is $68,000.
D) The annual financial advantage from processing Product Y further is $2,000.
121) Two products, QI and VH, emerge from a joint process. Product QI has been allocated
$29,300 of the total joint costs of $50,000. A total of 2,400 units of product QI are produced
from the joint process. Product QI can be sold at the split-off point for $13 per unit, or it can be
processed further for an additional total cost of $10,400 and then sold for $15 per unit. If product
QI is processed further and sold, what would be the financial advantage (disadvantage) for the
company compared with sale in its unprocessed form directly after the split-off point?
A) ($36,500)
B) $(5,600)
C) $25,600
D) ($23,700)
122) Two products, QI and VH, emerge from a joint process. Product QI has been allocated
$9,600 of the total joint costs of $12,000. A total of 9,000 units of product QI are produced from
the joint process. Product QI can be sold at the split-off point for $13 per unit, or it can be
processed further for an additional total cost of $54,000 and then sold for $18 per unit. If product
QI is processed further and sold, what would be the financial advantage (disadvantage) for the
company compared with sale in its unprocessed form directly after the split-off point?
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A) ($18,600)
B) $108,000
C) $600
D) ($9,000)
123) WP Corporation produces products X, Y, and Z from a single raw material input in a
joint production process. Budgeted data for the next month is as follows:
Product X Product Y Product Z
Units produced 1,900 2,400 3,400
Per unit sales value at split-off $ 14.00 $ 18.00 $ 19.00
Added processing costs per unit $ 4.00 $ 6.00 $ 6.00
Per unit sales value if processed further $ 23.00 $ 23.00 $
28.00
The cost of the joint raw material input is $82,000. Which of the products should be processed
beyond the split-off point?
Product X Product Y Product Z
A) yes yes no
B) yes no yes
C) no yes no
D) no yes yes
A) Choice A
B) Choice B
C) Choice C
D) Choice D
124) WP Corporation produces products X, Y, and Z from a single raw material input in a
joint production process. Budgeted data for the next month is as follows:
Product X Product Y Product Z
Units produced 1,500 2,000 3,000
Per unit sales value at split-off $ 19.00 $ 21.00 $ 24.00
Added processing costs per unit $ 7.00 $ 7.50 $ 7.00
Per unit sales value if processed further $ 29.00 $ 29.00 $
30.00
The cost of the joint raw material input is $149,000. Which of the products should be processed
beyond the split-off point?
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Product X Product Y Product Z
A) Yes Yes No
B) No Yes No
C) Yes No Yes
D) No Yes Yes
A) Choice A
B) Choice B
C) Choice C
D) Choice D
125) The Wyeth Corporation produces three products, A, B, and C, from a single raw material
input. Product A can be sold at the splitoff point for $40,000, or it can be processed further at a
total cost of $15,000 and then sold for $58,000. Joint costs total $60,000 annually. Product A
should be:
A) discontinued because revenues after further processing are less than total joint costs.
B) sold at the split-off point.
C) processed further and then sold.
D) processed further only if its share of the total joint costs is less than the incremental
revenues from further processing.
126) Vannorman Corporation processes sugar beets in batches. A batch of sugar beets costs
$78 to buy from farmers and $18 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
$25 or processed further for $16 to make the end product industrial fiber that is sold for $57. The
beet juice can be sold as is for $39 or processed further for $22 to make the end product refined
sugar that is sold for $84. How much profit (loss) does the company make by processing one
batch of sugar beets into the end products industrial fiber and refined sugar rather than not
processing that batch at all?
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A) ($134)
B) ($32)
C) $7
D) $39
127) Priddy Corporation processes sugar cane in batches. The company purchases a batch of
sugar cane for $62 from farmers and then crushes the cane in the company’s plant at the cost of
$18. Two intermediate products, cane fiber and cane juice, emerge from the crushing process.
The cane fiber can be sold as is for $28 or processed further for $13 to make the end product
industrial fiber that is sold for $36. The cane juice can be sold as is for $43 or processed further
for $23 to make the end product molasses that is sold for $85. Which of the intermediate
products should be processed further?
A) Cane fiber should NOT be processed into industrial fiber; Cane juice should be
processed into molasses
B) Cane fiber should 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 be processed
into molasses
D) Cane fiber should NOT be processed into industrial fiber; Cane juice should NOT be
processed into molasses
128) Stinehelfer Beet Processors, Incorporated, processes sugar beets in batches. A batch of
sugar beets costs $56 to buy from farmers and $18 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 $32 or processed further for $24 to make the end product industrial fiber that
is sold for $44. The beet juice can be sold as is for $52 or processed further for $32 to make the
end product refined sugar that is sold for $78. What is the financial advantage (disadvantage) for
the company from processing the intermediate product beet juice into refined sugar rather than
selling it as is?
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A) ($39)
B) $60
C) ($6)
D) $12
129) Stinehelfer Beet Processors, Incorporated, processes sugar beets in batches. A batch of
sugar beets costs $56 to buy from farmers and $13 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 $24 or processed further for $12 to make the end product industrial fiber that
is sold for $31. The beet juice can be sold as is for $43 or processed further for $29 to make the
end product refined sugar that is sold for $91. What is the financial advantage (disadvantage) for
the company from processing the intermediate product beet juice into refined sugar rather than
selling it as is?
A) $19
B) $6
C) ($50)
D) ($16)
130) Drew Cane Products, Incorporated, processes sugar cane in batches. The company buys a
batch of sugar cane from farmers for $90 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 $21 or processed further for $13 to make the end product
industrial fiber that is sold for $45. The cane juice can be sold as is for $41 or processed further
for $29 to make the end product molasses that is sold for $103. What is the financial advantage
(disadvantage) for the company from processing one batch of sugar cane into the end products
industrial fiber and molasses rather than not processing that batch at all?
A) $44
B) ($143)
C) ($39)
D) $5
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131) Faustina Chemical Corporation manufactures three chemicals (TX14, NJ35, and KS63)
from a joint process. The three chemicals are in industrial grade form at the split-off point. They
can either be sold at that point or processed further into premium grade. Costs related to each
batch of this chemical process is as follows:
TX14 NJ35 KS63
Sales value at split-off point $ 16,000 $ 12,000 $ 5,000
Allocated joint costs $ 6,000 $ 6,000 $ 6,000
Sales value after further processing $ 20,000 $ 18,000 $ 9,000
Cost of further processing $ 5,000 $ 3,000 $ 2,000
For which product(s) above would it be more profitable for Faustina to sell at the split-off point
rather than process further?
A) TX14 only
B) KS63 only
C) TX14 and KS63 only
D) NJ35 and KS63 only
132) Ouzts Corporation is considering Alternative A and Alternative B. Costs associated with
the alternatives are listed below:
Alternative A Alternative B
Materials costs $ 40,000 $ 56,000
Processing costs $ 37,000 $ 37,000
Equipment rental $ 13,000 $ 13,000
Occupancy costs $ 15,000 $ 22,000
Are the materials costs and processing costs relevant in the choice between alternatives A and B?
A) Both materials costs and processing costs are relevant
B) Neither materials costs nor processing costs are relevant
C) Only processing costs are relevant
D) Only materials costs are relevant
133) Ouzts Corporation is considering Alternative A and Alternative B. Costs associated with
the alternatives are listed below:
Alternative A Alternative B
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Materials costs $ 45,000 $ 59,500
Processing costs $ 41,300 $ 41,300
Equipment rental $ 14,300 $ 14,300
Occupancy costs $ 16,000 $ 24,100
What is the financial advantage (disadvantage) of Alternative B over Alternative A?
A) $116,600
B) $(22,600)
C) $139,200
D) $(127,900)
134) Ouzts Corporation is considering Alternative A and Alternative B. Costs associated with
the alternatives are listed below:
Alternative A Alternative B
Materials costs $ 40,000 $ 56,000
Processing costs $ 37,000 $ 37,000
Equipment rental $ 13,000 $ 13,000
Occupancy costs $ 15,000 $ 22,000
What is the financial advantage (disadvantage) of Alternative B over Alternative A?
A) $105,000
B) $(23,000)
C) $128,000
D) $(116,500)
135) Two alternatives, code-named X and Y, are under consideration at Guyer Corporation.
Costs associated with the alternatives are listed below.
Alternative X Alternative Y
Materials costs $ 41,000 $ 59,000
Processing costs $ 45,000 $ 45,000
Equipment rental $ 17,000 $ 17,000
Occupancy costs $ 16,000 $ 24,000
Are the materials costs and processing costs relevant in the choice between alternatives X and Y?
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A) Neither materials costs nor processing costs are relevant
B) Only processing costs are relevant
C) Only materials costs are relevant
D) Both materials costs and processing costs are relevant
136) Two alternatives, code-named X and Y, are under consideration at Guyer Corporation.
Costs associated with the alternatives are listed below.
Alternative X Alternative Y
Materials costs $ 55,000 $ 80,000
Processing costs $ 60,400 $ 60,400
Equipment rental $ 22,600 $ 22,600
Occupancy costs $ 21,600 $ 32,000
What is the financial advantage (disadvantage) of Alternative Y over Alternative X?
A) $(177,300)
B) $159,600
C) $195,000
D) $(35,400)
137) Two alternatives, code-named X and Y, are under consideration at Guyer Corporation.
Costs associated with the alternatives are listed below.
Alternative X Alternative Y
Materials costs $ 41,000 $ 59,000
Processing costs $ 45,000 $ 45,000
Equipment rental $ 17,000 $ 17,000
Occupancy costs $ 16,000 $ 24,000
What is the financial advantage (disadvantage) of Alternative Y over Alternative X?
A) $(132,000)
B) $119,000
C) $145,000
D) $(26,000)
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138) The Tolar Corporation has 400 obsolete desk calculators that are carried in inventory at a
total cost of $26,800. If these calculators are upgraded at a total cost of $10,000, they can be sold
for a total of $30,000. As an alternative, the calculators can be sold in their present condition for
$11,200.
The sunk cost in this situation is:
A) $10,000
B) $26,800
C) $11,200
D) $0
139) The Tolar Corporation has 400 obsolete desk calculators that are carried in inventory at a
total cost of $576,000. If these calculators are upgraded at a total cost of $130,000, they can be
sold for a total of $190,000. As an alternative, the calculators can be sold in their present
condition for $40,000.
What is the financial advantage (disadvantage) to the company from upgrading the calculators?
A) $150,000
B) ($590,000)
C) $20,000
D) ($60,000)
140) The Tolar Corporation has 400 obsolete desk calculators that are carried in inventory at a
total cost of $26,800. If these calculators are upgraded at a total cost of $10,000, they can be sold
for a total of $30,000. As an alternative, the calculators can be sold in their present condition for
$11,200.
What is the financial advantage (disadvantage) to the company from upgrading the calculators?
A) $8,800
B) ($18,000)
C) $20,000
D) ($8,000)
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141) The Tolar Corporation has 600 obsolete desk calculators that are carried in inventory at a
total cost of $864,000. If these calculators are upgraded at a total cost of $200,000, they can be
sold for a total of $260,000. As an alternative, the calculators can be sold in their present
condition for $40,000.
Assume that Tolar decides to upgrade the calculators. At what selling price per unit would the
company be as well off as if it just sold the calculators in their present condition?
A) $100 per calculator
B) $452 per calculator
C) $400 per calculator
D) $210 per calculator
142) The Tolar Corporation has 400 obsolete desk calculators that are carried in inventory at a
total cost of $26,800. If these calculators are upgraded at a total cost of $10,000, they can be sold
for a total of $30,000. As an alternative, the calculators can be sold in their present condition for
$11,200.
Assume that Tolar decides to upgrade the calculators. At what selling price per unit would the
company be as well off as if it just sold the calculators in their present condition?
A) $8 per calculator
B) $30 per calculator
C) $53 per calculator
D) $67 per calculator
143) The management of Bonga Corporation is considering dropping product D74F. Data
from the company’s accounting system for this product for last year appear below:
Sales $ 929,000
Variable expenses $ 408,000
Fixed manufacturing expenses $ 343,000
Fixed selling and administrative expenses $ 250,000
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All fixed expenses of the company are fully allocated to products in the company’s accounting
system. Further investigation has revealed that $210,000 of the fixed manufacturing expenses
and $121,000 of the fixed selling and administrative expenses are avoidable if product D74F is
discontinued.
According to the company’s accounting system, what is the net operating income (loss) earned
by product D74F? Include all costs in this calculation—whether relevant or not.
A) $72,000
B) ($521,000)
C) ($72,000)
D) $521,000
144) The management of Bonga Corporation is considering dropping product D74F. Data
from the company’s accounting system for this product for last year appear below:
Sales $ 830,000
Variable expenses $ 390,000
Fixed manufacturing expenses $ 266,000
Fixed selling and administrative expenses $ 232,000
All fixed expenses of the company are fully allocated to products in the company’s accounting
system. Further investigation has revealed that $111,000 of the fixed manufacturing expenses
and $103,000 of the fixed selling and administrative expenses are avoidable if product D74F is
discontinued.
According to the company’s accounting system, what is the net operating income earned by
product D74F? Include all costs in this calculation—whether relevant or not.
A) ($58,000)
B) ($440,000)
C) $58,000
D) $440,000
145) The management of Bonga Corporation is considering dropping product D74F. Data
from the company’s accounting system for this product for last year appear below:
Sales $ 929,000
Variable expenses $ 408,500
Fixed manufacturing expenses $ 343,000
Fixed selling and administrative expenses $ 250,000
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All fixed expenses of the company are fully allocated to products in the company’s accounting
system. Further investigation has revealed that $210,500 of the fixed manufacturing expenses
and $121,500 of the fixed selling and administrative expenses are avoidable if product D74F is
discontinued.
What would be the financial advantage (disadvantage) from dropping product D74F?
A) $188,500
B) $72,500
C) ($72,500)
D) ($188,500)
146) The management of Bonga Corporation is considering dropping product D74F. Data
from the company’s accounting system for this product for last year appear below:
Sales $ 830,000
Variable expenses $ 390,000
Fixed manufacturing expenses $ 266,000
Fixed selling and administrative expenses $ 232,000
All fixed expenses of the company are fully allocated to products in the company’s accounting
system. Further investigation has revealed that $111,000 of the fixed manufacturing expenses
and $103,000 of the fixed selling and administrative expenses are avoidable if product D74F is
discontinued.
What would be the financial advantage (disadvantage) from dropping product D74F?
A) $226,000
B) $58,000
C) ($226,000)
D) ($58,000)
147) Key Corporation is considering the addition of a new product. The expected cost and
revenue data for the new product are as follows:
Annual sales 2,500 units
Selling price per unit $ 304
Variable costs per unit:
Production $ 125
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Selling $ 49
Avoidable fixed costs per year:
Production $ 50,000
Selling $ 75,000
Allocated common fixed corporate costs per year $ 55,000
If the new product is added, the combined contribution margin of the other, existing products is
expected to drop $65,000 per year. Total common fixed corporate costs would be unaffected by
the decision of whether to add the new product.
If the new product is added next year, the financial advantage (disadvantage) resulting from
this decision would be:
A) $325,000
B) $200,000
C) $145,000
D) $135,000
148) Key Corporation is considering the addition of a new product. The expected cost and
revenue data for the new product are as follows:
Annual sales 2,500 units
Selling price per unit $ 304
Variable costs per unit:
Production $ 125
Selling $ 49
Avoidable fixed costs per year:
Production $ 50,000
Selling $ 75,000
Allocated common fixed corporate costs per year $ 55,000
If the new product is added, the combined contribution margin of the other, existing products is
expected to drop $65,000 per year. Total common fixed corporate costs would be unaffected by
the decision of whether to add the new product.
At what selling price would the new product be just breaking even?
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A) $246 per unit
B) $250 per unit
C) $232 per unit
D) $282 per unit
149) The Draper Corporation is considering dropping its Doombug toy due to continuing
losses. Data on the toy for the past year follow:
Sales of 15,000 units $ 150,000
Variable expenses 120,000
Contribution margin 30,000
Fixed expenses 40,000
Net operating loss $ (10,000)
If the toy were discontinued, Draper could avoid $8,000 per year in fixed costs. The remainder of
the fixed costs are not avoidable.
The annual financial advantage (disadvantage) for the company from discontinuing the
production and sale of Doombugs would be:
A) ($30,000)
B) $10,000
C) ($22,000)
D) $18,000
150) The Draper Corporation is considering dropping its Doombug toy due to continuing
losses. Data on the toy for the past year follow:
Sales of 15,000 units $ 150,000
Variable expenses 120,000
Contribution margin 30,000
Fixed expenses 40,000
Net operating loss $ (10,000)
If the toy were discontinued, Draper could avoid $8,000 per year in fixed costs. The remainder of
the fixed costs are not avoidable.
Assuming all other conditions stay the same, at what level of annual sales of Doombugs (in
units) should Draper be indifferent between discontinuing Doombugs or continuing the
production and sale of Doombugs?
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A) 20,000 units
B) 18,000 units
C) 6,000 units
D) 4,000 units
151) The Draper Corporation is considering dropping its Doombug toy due to continuing
losses. Data on the toy for the past year follow:
Sales of 15,000 units $ 150,000
Variable expenses 120,000
Contribution margin 30,000
Fixed expenses 40,000
Net operating loss $ (10,000)
If the toy were discontinued, Draper could avoid $8,000 per year in fixed costs. The remainder of
the fixed costs are not avoidable.
Suppose that if the Doombug toy is dropped, the production and sale of other Draper toys
would increase so as to generate a $16,000 increase in the contribution margin received from
these other toys. If all other conditions are the same, the financial advantage (disadvantage) from
discontinuing the production and sale of Doombugs would be:
A) ($6,000)
B) $14,000
C) ($2,000)
D) $28,000
152) The management of Woznick Corporation has been concerned for some time with the
financial performance of its product V86O and has considered discontinuing it on several
occasions. Data from the company’s accounting system for this product for last year appear
below:
Sales $ 150,000
Variable expenses $ 72,000
Fixed manufacturing expenses $ 50,000
Fixed selling and administrative expenses $ 33,000
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In the company’s accounting system all fixed expenses of the company are fully allocated to
products. Further investigation has revealed that $30,000 of the fixed manufacturing expenses
and $13,000 of the fixed selling and administrative expenses are avoidable if product V86O is
discontinued.
According to the company’s accounting system, what is the net operating income earned by
product V86O? Include all costs in this calculation—whether relevant or not.
A) $78,000
B) ($5,000)
C) ($78,000)
D) $5,000
153) The management of Woznick Corporation has been concerned for some time with the
financial performance of its product V86O and has considered discontinuing it on several
occasions. Data from the company’s accounting system for this product for last year appear
below:
Sales $ 150,000
Variable expenses $ 72,000
Fixed manufacturing expenses $ 50,000
Fixed selling and administrative expenses $ 33,000
In the company’s accounting system all fixed expenses of the company are fully allocated to
products. Further investigation has revealed that $30,000 of the fixed manufacturing expenses
and $13,000 of the fixed selling and administrative expenses are avoidable if product V86O is
discontinued.
What would be the financial advantage (disadvantage) from dropping product V86O?
A) ($35,000)
B) ($5,000)
C) $35,000
D) $5,000
154) Balser Corporation manufactures and sells a number of products, including a product
called JYMP. Results for last year for the manufacture and sale of JYMPs are as follows:
Sales $ 960,000
Less expenses:
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Variable production costs $ 464,000
Sales commissions 144,000
Salary of product manager 100,000
Fixed product advertising 160,000
Fixed manufacturing overhead 132,000 1,000,000
Net operating loss $ (40,000)
Balser is trying to decide whether to discontinue the manufacture and sale of JYMPs. All
expenses other than fixed manufacturing overhead are avoidable if the product is dropped. None
of the fixed manufacturing overhead is avoidable.
Assume that dropping Product JYMP will have no effect on other products. The annual
financial advantage (disadvantage) for the company of eliminating this product should be:
A) $40,000
B) ($132,000)
C) ($92,000)
D) ($172,000)
155) Balser Corporation manufactures and sells a number of products, including a product
called JYMP. Results for last year for the manufacture and sale of JYMPs are as follows:
Sales $ 960,000
Less expenses:
Variable production costs $ 464,000
Sales commissions 144,000
Salary of product manager 100,000
Fixed product advertising 160,000
Fixed manufacturing overhead 132,000 1,000,000
Net operating loss $ (40,000)
Balser is trying to decide whether to discontinue the manufacture and sale of JYMPs. All
expenses other than fixed manufacturing overhead are avoidable if the product is dropped. None
of the fixed manufacturing overhead is avoidable.
Assume that dropping Product JYMP would result in a $90,000 increase in the contribution
margin of other products. If Balser chooses to discontinue JYMP, the annual financial advantage
(disadvantage) of eliminating this product should be:
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A) ($40,000)
B) $40,000
C) ($2,000)
D) $50,000
156) Mcfarlain Corporation is presently making part U98 that is used in one of its products. A
total of 7,000 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 $ 3.70
Direct labor $ 3.60
Variable overhead $ 1.40
Supervisor’s salary $ 4.00
Depreciation of special equipment $ 3.90
Allocated general overhead $ 4.10
An outside supplier has offered to produce and sell the part to the company for $17.10 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, none of which would be avoided if the part were purchased instead of produced
internally.
If management decides to buy part U98 from the outside supplier rather than to continue
making the part, what would be the annual financial advantage (disadvantage)?
A) ($30,800)
B) $25,200
C) $30,800
D) ($25,200)
157) Mcfarlain Corporation is presently making part U98 that is used in one of its products. A
total of 22,000 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 $ 4.30
Direct labor $ 2.20
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Variable overhead $ 0.90
Supervisor’s salary $ 2.60
Depreciation of special equipment $ 2.60
Allocated general overhead $ 2.80
An outside supplier has offered to produce and sell the part to the company for $11.70 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, none of which would be avoided if the part were purchased instead of produced
internally.
In addition to the facts given above, assume that the space used to produce part U98 could be
used to make more of one of the company’s other products, generating an additional segment
margin of $33,100 per year for that product. What would be the financial advantage
(disadvantage) of buying part U98 from the outside supplier and using the freed space to make
more of the other product?
A) ($4,300)
B) ($15,300)
C) $33,100
D) ($81,500)
158) Mcfarlain Corporation is presently making part U98 that is used in one of its products. A
total of 7,000 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 $ 3.70
Direct labor $ 3.60
Variable overhead $ 1.40
Supervisor’s salary $ 4.00
Depreciation of special equipment $ 3.90
Allocated general overhead $ 4.10
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An outside supplier has offered to produce and sell the part to the company for $17.10 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, none of which would be avoided if the part were purchased instead of produced
internally.
In addition to the facts given above, assume that the space used to produce part U98 could be
used to make more of one of the company’s other products, generating an additional segment
margin of $24,000 per year for that product. What would be the financial advantage
(disadvantage) of buying part U98 from the outside supplier and using the freed space to make
more of the other product?
A) ($6,800)
B) ($1,200)
C) $24,000
D) ($49,200)
159) Penagos Corporation is presently making part Z43 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 $ 1.10
Direct labor $ 3.10
Variable overhead $ 6.90
Supervisor’s salary $ 5.80
Depreciation of special equipment $ 5.20
Allocated general overhead $ 5.60
An outside supplier has offered to produce 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. If the outside supplier’s offer were accepted, only $4,000 of these allocated
general overhead costs would be avoided.
If management decides to buy part Z43 from the outside supplier rather than to continue
making the part, what would be the annual financial advantage (disadvantage)?
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A) ($34,500)
B) ($30,500)
C) ($15,500)
D) ($38,500)
160) Penagos Corporation is presently making part Z43 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 $ 1.10
Direct labor $ 3.10
Variable overhead $ 6.90
Supervisor’s salary $ 5.80
Depreciation of special equipment $ 5.20
Allocated general overhead $ 5.60
An outside supplier has offered to produce 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. If the outside supplier’s offer were accepted, only $4,000 of these allocated
general overhead costs would be avoided.
In addition to the facts given above, assume that the space used to produce part Z43 could be
used to make more of one of the company’s other products, generating an additional segment
margin of $24,000 per year for that product. What would be the annual financial advantage
(disadvantage) of buying part Z43 from the outside supplier and using the freed space to make
more of the other product?
A) ($10,500)
B) ($58,500)
C) $24,000
D) $8,500
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161) Elly Industries is a multi-product company that currently manufactures 30,000 units of
part MR24 each month for use in production of its products. The facilities now being used to
produce part MR24 have a fixed monthly cost of $150,000 and a capacity to produce 35,000
units per month. If Elly were to buy part MR24 from an outside supplier, the facilities would be
idle, but its fixed costs would continue at 40% of their present amount. The variable production
costs of Part MR24 are $11 per unit.
If Elly Industries continues to use 30,000 units of part MR24 each month, it would realize a
financial advantage by purchasing this part from an outside supplier only if the supplier’s unit
price is less than:
A) $14 per unit
B) $11 per unit
C) $16 per unit
D) $13 per unit
162) Elly Industries is a multi-product company that currently manufactures 30,000 units of
part MR24 each month for use in production of its products. The facilities now being used to
produce part MR24 have a fixed monthly cost of $150,000 and a capacity to produce 35,000
units per month. If Elly were to buy part MR24 from an outside supplier, the facilities would be
idle, but its fixed costs would continue at 40% of their present amount. The variable production
costs of Part MR24 are $11 per unit.
If Elly industries is able to obtain part MR24 from an outside supplier at a purchase price of
$10 per unit, the monthly financial advantage (disadvantage) of buying the part rather than
making it would be:
A) $30,000
B) $180,000
C) $90,000
D) $120,000
163) Melbourne Corporation has traditionally made a subcomponent of its major product.
Annual production of 30,000 subcomponents results in the following costs:
Direct materials $ 250,000
Direct labor $ 200,000
Variable manufacturing overhead $ 190,000
Fixed manufacturing overhead $ 120,000
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Melbourne has received an offer from an outside supplier who is willing to provide the 30,000
units of the subcomponent each year at a price of $28 per unit. Melbourne knows that the
facilities now being used to manufacture the subcomponent could be rented to another company
for $80,000 per year if the subcomponent were purchased from the outside supplier. There would
be no effect of this decision on the total fixed manufacturing overhead of the company. Assume
that direct labor is a variable cost.
If Melbourne decides to purchase the subcomponent from the outside supplier, the annual
financial advantage (disadvantage) would be:
A) $120,000
B) $20,000
C) ($120,000)
D) ($20,000)
164) Melbourne Corporation has traditionally made a subcomponent of its major product.
Annual production of 30,000 subcomponents results in the following costs:
Direct materials $ 250,000
Direct labor $ 200,000
Variable manufacturing overhead $ 190,000
Fixed manufacturing overhead $ 120,000
Melbourne has received an offer from an outside supplier who is willing to provide the 30,000
units of the subcomponent each year at a price of $28 per unit. Melbourne knows that the
facilities now being used to manufacture the subcomponent could be rented to another company
for $80,000 per year if the subcomponent were purchased from the outside supplier. There would
be no effect of this decision on the total fixed manufacturing overhead of the company. Assume
that direct labor is a variable cost.
At what price per unit charged by the outside supplier would Melbourne be indifferent between
making or buying the subcomponent?
A) $29 per unit
B) $25 per unit
C) $21 per unit
D) $24 per unit
165) Ahrends Corporation makes 70,000 units per year of a part it uses in the products it
manufactures. The unit product cost of this part is computed as follows:
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Direct materials $ 17.80
Direct labor 19.00
Variable manufacturing overhead 1.00
Fixed manufacturing overhead 17.10
Unit product cost $ 54.90
An outside supplier has offered to sell the company all of these parts it needs for $48.50 a unit. If
the company accepts this offer, the facilities now being used to make the part could be used to
make more units of a product that is in high demand. The additional contribution margin on this
other product would be $273,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part
would be avoided. However, $8.20 of the fixed manufacturing overhead cost being applied to the
part would continue even if the part were purchased from the outside supplier. This fixed
manufacturing overhead cost would be applied to the company’s remaining products.
How much of the unit product cost of $54.90 is relevant in the decision of whether to make or
buy the part? (Round your intermediate calculations to 2 decimal places.)
A) $37.80 per unit
B) $46.70 per unit
C) $54.90 per unit
D) $19.00 per unit
166) Ahrends Corporation makes 70,000 units per year of a part it uses in the products it
manufactures. The unit product cost of this part is computed as follows:
Direct materials $ 17.80
Direct labor 19.00
Variable manufacturing overhead 1.00
Fixed manufacturing overhead 17.10
Unit product cost $ 54.90
An outside supplier has offered to sell the company all of these parts it needs for $48.50 a unit. If
the company accepts this offer, the facilities now being used to make the part could be used to
make more units of a product that is in high demand. The additional contribution margin on this
other product would be $273,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part
would be avoided. However, $8.20 of the fixed manufacturing overhead cost being applied to the
part would continue even if the part were purchased from the outside supplier. This fixed
manufacturing overhead cost would be applied to the company’s remaining products.
What is the financial advantage (disadvantage) of purchasing the part rather than making it?
(Round your intermediate calculations to 2 decimal places.)
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A) $273,000
B) ($126,000)
C) $147,000
D) $448,000
167) Ahrends Corporation makes 47,000 units per year of a part it uses in the products it
manufactures. The unit product cost of this part is computed as follows:
Direct materials $ 14.80
Direct labor 24.10
Variable manufacturing overhead 3.30
Fixed manufacturing overhead 28.90
Unit product cost $ 71.10
An outside supplier has offered to sell the company all of these parts it needs for $57.40 a unit. If
the company accepts this offer, the facilities now being used to make the part could be used to
make more units of a product that is in high demand. The additional contribution margin on this
other product would be $235,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part
would be avoided. However, $25.40 of the fixed manufacturing overhead cost being applied to
the part would continue even if the part were purchased from the outside supplier. This fixed
manufacturing overhead cost would be applied to the company’s remaining products.
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 47,000 units required each year? (Round
your intermediate calculations to 2 decimal places.)
A) $5.00 per unit
B) $50.70 per unit
C) $71.10 per unit
D) $76.10 per unit
168) Ahrends Corporation makes 70,000 units per year of a part it uses in the products it
manufactures. The unit product cost of this part is computed as follows:
Direct materials $ 17.80
Direct labor 19.00
Variable manufacturing overhead 1.00
Fixed manufacturing overhead 17.10
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Unit product cost $ 54.90
An outside supplier has offered to sell the company all of these parts it needs for $48.50 a unit. If
the company accepts this offer, the facilities now being used to make the part could be used to
make more units of a product that is in high demand. The additional contribution margin on this
other product would be $273,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part
would be avoided. However, $8.20 of the fixed manufacturing overhead cost being applied to the
part would continue even if the part were purchased from the outside supplier. This fixed
manufacturing overhead cost would be applied to the company’s remaining products.
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 70,000 units required each year? (Round
your intermediate calculations to 2 decimal places.)
A) $50.60 per unit
B) $3.90 per unit
C) $58.80 per unit
D) $54.90 per unit
169) The following are Silver Corporation’s unit costs of making and selling an item at a
volume of 8,000 units per month (which represents the company’s capacity):
Manufacturing:
Direct materials $ 4
Direct labor $ 5
Variable overhead $ 2
Fixed overhead $ 8
Selling and administrative:
Variable $ 1
Fixed $ 6
Present sales amount to 7,000 units per month. An order has been received from a customer in a
foreign market for 1,000 units. The order would not affect regular sales. Total fixed costs, both
manufacturing and selling and administrative, would not be affected by this order. The variable
selling and administrative costs would have to be incurred for this special order as well as all
other sales. Assume that direct labor is a variable cost.
What is the financial advantage (disadvantage) for the company from this special order if it
prices the 1,000 units at $20 per unit?
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A) $1,000
B) $9,000
C) ($6,000)
D) $8,000
170) The following are Silver Corporation’s unit costs of making and selling an item at a
volume of 8,100 units per month (which represents the company’s capacity):
Manufacturing:
Direct materials $ 1.60
Direct labor $ 2.60
Variable overhead $ 1.10
Fixed overhead $ 0.70
Selling and administrative:
Variable $ 2.60
Fixed $ 1.10
Present sales amount to 6,500 units per month. An order has been received from a customer in a
foreign market for 1,600 units. The order would not affect regular sales. Total fixed costs, both
manufacturing and selling and administrative, would not be affected by this order. The variable
selling and administrative costs would have to be incurred for this special order as well as all
other sales. Assume that direct labor is a variable cost.
Assume the company has 80 units left over from last year which have small defects and which
will have to be sold at a reduced price for scrap. The sale of these defective units will have no
effect on the company’s other sales. Which of the following costs is relevant in this decision?
A) $5.30 variable manufacturing cost
B) $6.00 unit product cost
C) $2.60 variable selling and administrative cost
D) $9.70 full cost
171) The following are Silver Corporation’s unit costs of making and selling an item at a
volume of 8,000 units per month (which represents the company’s capacity):
Manufacturing:
Direct materials $ 4
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Direct labor $ 5
Variable overhead $ 2
Fixed overhead $ 8
Selling and administrative:
Variable $ 1
Fixed $ 6
Present sales amount to 7,000 units per month. An order has been received from a customer in a
foreign market for 1,000 units. The order would not affect regular sales. Total fixed costs, both
manufacturing and selling and administrative, would not be affected by this order. The variable
selling and administrative costs would have to be incurred for this special order as well as all
other sales. Assume that direct labor is a variable cost.
Assume the company has 50 units left over from last year which have small defects and which
will have to be sold at a reduced price for scrap. The sale of these defective units will have no
effect on the company’s other sales. Which of the following costs is relevant in this decision?
A) $11 variable manufacturing cost
B) $19 unit product cost
C) $1 variable selling and administrative cost
D) $26 full cost
172) The Bharu Violin Corporation has the capacity to manufacture and sell 5,000 violins each
year but is currently only manufacturing and selling 4,800. The following data relate to annual
operations at 4,800 units:
Per Violin
Selling price $ 600
Manufacturing costs:
Variable $ 130
Fixed $ 270
Selling and administrative costs:
Variable $ 20
Fixed $ 40
Woolgar Symphony Orchestra is interested in purchasing Bharu’s excess capacity of 200 units
but only if they can get the violins for $350 each. This special order would not affect regular
sales or the total fixed costs.
If the special order from Woolgar Symphony Orchestra is accepted, the financial advantage
(disadvantage) Bharu for the year should be:
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A) $40,000
B) ($10,000)
C) ($22,000)
D) ($28,000)
173) The Bharu Violin Corporation has the capacity to manufacture and sell 5,000 violins each
year but is currently only manufacturing and selling 4,800. The following data relate to annual
operations at 4,800 units:
Per Violin
Selling price $ 600
Manufacturing costs:
Variable $ 130
Fixed $ 270
Selling and administrative costs:
Variable $ 20
Fixed $ 40
Woolgar Symphony Orchestra is interested in purchasing Bharu’s excess capacity of 200 units
but only if they can get the violins for $350 each. This special order would not affect regular
sales or the total fixed costs.
Assume that Bharu is manufacturing and selling at capacity (5,000 units). Any special order
will mean a loss of regular sales. Under these conditions if the special order from Woolgar
Symphony Orchestra is accepted, the financial advantage (disadvantage) Bharu for the year
should be:
A) $20,000
B) ($22,000)
C) ($28,000)
D) ($50,000)
174) Elfalan Corporation produces a single product. The cost of producing and selling a single
unit of this product at the company’s normal activity level of 44,000 units per month is as
follows:
Per Unit
Direct materials $ 44.60
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Direct labor $ 8.50
Variable manufacturing overhead $ 1.50
Fixed manufacturing overhead $ 18.10
Variable selling & administrative expense $ 2.60
Fixed selling & administrative expense $ 12.00
The normal selling price of the product is $94.10 per unit.
An order has been received from an overseas customer for 2,400 units to be delivered this
month at a special discounted price. This order would not change the total amount of the
company’s fixed costs. The variable selling and administrative expense would be $1.60 less per
unit on this order than on normal sales.
Direct labor is a variable cost in this company.
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 $80.40 per unit. The monthly financial
advantage (disadvantage) for the company as a result of accepting this special order should be:
A) ($31,000)
B) $16,080
C) $59,520
D) ($16,560)
175) Elfalan Corporation produces a single product. The cost of producing and selling a single
unit of this product at the company’s normal activity level of 80,000 units per month is as
follows:
Per Unit
Direct materials $ 22.50
Direct labor $ 7.50
Variable manufacturing overhead $ 1.70
Fixed manufacturing overhead $ 19.00
Variable selling & administrative expense $ 2.70
Fixed selling & administrative expense $ 8.60
The normal selling price of the product is $67.80 per unit.
An order has been received from an overseas customer for 3,000 units to be delivered this
month at a special discounted price. This order would not change the total amount of the
company’s fixed costs. The variable selling and administrative expense would be $1.90 less per
unit on this order than on normal sales.
Direct labor is a variable cost in this company.
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 $60.60 per unit. The monthly financial
advantage (disadvantage) for the company as a result of accepting this special order should be:
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A) ($4,200)
B) $84,300
C) ($15,900)
D) $27,300
176) Elfalan Corporation produces a single product. The cost of producing and selling a single
unit of this product at the company’s normal activity level of 80,000 units per month is as
follows:
Per Unit
Direct materials $ 22.50
Direct labor $ 7.50
Variable manufacturing overhead $ 1.70
Fixed manufacturing overhead $ 19.00
Variable selling & administrative expense $ 2.70
Fixed selling & administrative expense $ 8.60
The normal selling price of the product is $67.80 per unit.
An order has been received from an overseas customer for 3,000 units to be delivered this
month at a special discounted price. This order would not change the total amount of the
company’s fixed costs. The variable selling and administrative expense would be $1.90 less per
unit on this order than on normal sales.
Direct labor is a variable cost in this company.
What is the contribution margin per unit on normal sales? (Round your intermediate
calculations to 2 decimal places.)
A) $7.20 per unit
B) $33.40 per unit
C) $5.80 per unit
D) $7.70 per unit
177) Elfalan Corporation produces a single product. The cost of producing and selling a single
unit of this product at the company’s normal activity level of 57,000 units per month is as
follows:
Direct materials $ 51.10
Direct labor $ 9.80
Variable manufacturing overhead $ 2.80
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Fixed manufacturing overhead $ 20.70
Variable selling & administrative expense $ 5.20
Fixed selling & administrative expense $ 25.00
The normal selling price of the product is $120.10 per unit.
An order has been received from an overseas customer for 3,700 units to be delivered this
month at a special discounted price. This order would not change the total amount of the
company’s fixed costs. The variable selling and administrative expense would be $2.90 less per
unit on this order than on normal sales.
Direct labor is a variable cost in this company.
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 1,550 units for
regular customers. The minimum acceptable price per unit for the special order is closest to:
(Round your intermediate calculations to 2 decimal places.)
A) $120.10 per unit
B) $99.30 per unit
C) $69.10 per unit
D) $87.45 per unit
178) Elfalan Corporation produces a single product. The cost of producing and selling a single
unit of this product at the company’s normal activity level of 80,000 units per month is as
follows:
Direct materials $ 22.50
Direct labor $ 7.50
Variable manufacturing overhead $ 1.70
Fixed manufacturing overhead $ 19.00
Variable selling & administrative expense $ 2.70
Fixed selling & administrative expense $ 8.60
The normal selling price of the product is $67.80 per unit.
An order has been received from an overseas customer for 3,000 units to be delivered this
month at a special discounted price. This order would not change the total amount of the
company’s fixed costs. The variable selling and administrative expense would be $1.90 less per
unit on this order than on normal sales.
Direct labor is a variable cost in this company.
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 1,600 units for
regular customers. The minimum acceptable price per unit for the special order is closest to:
(Round your intermediate calculations to 2 decimal places.)
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A) $62.00 per unit
B) $50.70 per unit
C) $67.80 per unit
D) $50.31 per unit
179) The Melville Corporation produces a single product called a Pong. Melville has the
capacity to produce 60,000 Pongs each year. If Melville produces at capacity, the per unit costs
to produce and sell one Pong are as follows:
Direct materials $ 15
Direct labor $ 12
Variable manufacturing overhead $ 8
Fixed manufacturing overhead $ 9
Variable selling expense $ 8
Fixed selling expense $ 3
The regular selling price for one Pong is $80. A special order has been received by Melville from
Mowen Corporation to purchase 6,000 Pongs next year. If this special order is accepted, the
variable selling expense will be reduced by 75%. However, Melville will have to purchase a
specialized machine to engrave the Mowen name on each Pong in the special order. This
machine will cost $9,000 and it will have no use after the special order is filled. The total fixed
manufacturing overhead and selling expenses would be unaffected by this special order. Assume
that direct labor is a variable cost.
Assume Melville anticipates selling only 50,000 units of Pong to regular customers next year.
If Mowen Corporation offers to buy the special order units at $65 per unit, the annual financial
advantage (disadvantage) for the company as a result of accepting this special order should be:
A) $60,000
B) ($90,000)
C) $159,000
D) $36,000
180) The Melville Corporation produces a single product called a Pong. Melville has the
capacity to produce 60,000 Pongs each year. If Melville produces at capacity, the per unit costs
to produce and sell one Pong are as follows:
Direct materials $ 15
Direct labor $ 12
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Variable manufacturing overhead $ 8
Fixed manufacturing overhead $ 9
Variable selling expense $ 8
Fixed selling expense $ 3
The regular selling price for one Pong is $80. A special order has been received by Melville from
Mowen Corporation to purchase 6,000 Pongs next year. If this special order is accepted, the
variable selling expense will be reduced by 75%. However, Melville will have to purchase a
specialized machine to engrave the Mowen name on each Pong in the special order. This
machine will cost $9,000 and it will have no use after the special order is filled. The total fixed
manufacturing overhead and selling expenses would be unaffected by this special order. Assume
that direct labor is a variable cost.
Assume Melville anticipates selling only 50,000 units of Pong to regular customers next year.
At what selling price for the 6,000 special order units would Melville be financially indifferent
between accepting or rejecting the special order from Mowen?
A) $51.50 per unit
B) $49.00 per unit
C) $37.00 per unit
D) $38.50 per unit
181) The Melville Corporation produces a single product called a Pong. Melville has the
capacity to produce 60,000 Pongs each year. If Melville produces at capacity, the per unit costs
to produce and sell one Pong are as follows:
Direct materials $ 15
Direct labor $ 12
Variable manufacturing overhead $ 8
Fixed manufacturing overhead $ 9
Variable selling expense $ 8
Fixed selling expense $ 3
The regular selling price for one Pong is $80. A special order has been received by Melville from
Mowen Corporation to purchase 6,000 Pongs next year. If this special order is accepted, the
variable selling expense will be reduced by 75%. However, Melville will have to purchase a
specialized machine to engrave the Mowen name on each Pong in the special order. This
machine will cost $9,000 and it will have no use after the special order is filled. The total fixed
manufacturing overhead and selling expenses would be unaffected by this special order. Assume
that direct labor is a variable cost.
Assume Melville can sell 58,000 units of Pong to regular customers next year. If Mowen
Corporation offers to buy the 6,000 special order units at $65 per unit, the annual financial
advantage (disadvantage) for Melville as a result of accepting this special order should be:
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A) $36,000
B) $11,000
C) $192,000
D) $47,000
182) Younes Incorporated manufactures industrial components. One of its products, which is
used in the construction of industrial air conditioners, is known as P06. Data concerning this
product are given below:
Per Unit
Selling price $ 220
Direct materials $ 38
Direct labor $ 1
Variable manufacturing overhead $ 8
Fixed manufacturing overhead $ 16
Variable selling expense $ 4
Fixed selling and administrative expense $ 16
The above per unit data are based on annual production of 4,000 units of the component. Assume
that direct labor is a variable cost.
The company has received a special, one-time-only order for 400 units of component P06.
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 Younes 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) $47 per unit
B) $83 per unit
C) $63 per unit
D) $220 per unit
183) Younes Incorporated manufactures industrial components. One of its products, which is
used in the construction of industrial air conditioners, is known as P06. Data concerning this
product are given below:
Per Unit
Selling price $ 220
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Direct materials $ 38
Direct labor $ 1
Variable manufacturing overhead $ 8
Fixed manufacturing overhead $ 16
Variable selling expense $ 4
Fixed selling and administrative expense $ 16
The above per unit data are based on annual production of 4,000 units of the component. Assume
that direct labor is a variable cost.
The company has received a special, one-time-only order for 500 units of component P06.
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 Younes 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 $10,000. What is the minimum price per
unit below which the company should not accept the special order?
A) $67 per unit
B) $103 per unit
C) $20 per unit
D) $83 per unit
184) Younes Incorporated manufactures industrial components. One of its products, which is
used in the construction of industrial air conditioners, is known as P06. Data concerning this
product are given below:
Per Unit
Selling price $ 220
Direct materials $ 38
Direct labor $ 1
Variable manufacturing overhead $ 8
Fixed manufacturing overhead $ 16
Variable selling expense $ 4
Fixed selling and administrative expense $ 16
The above per unit data are based on annual production of 4,000 units of the component. Assume
that direct labor is a variable cost.
What is the current contribution margin per unit for component P06 based on its selling price
of $220 and its annual production of 4,000 units?
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A) $51 per unit
B) $137 per unit
C) $169 per unit
D) $173 per unit
185) The Wester Corporation produces three products with the following costs and selling
prices:
Product
A B C
Selling price per unit $ 21 $ 12 $ 32
Variable cost per unit $ 11 $ 7 $ 18
Fixed cost per unit $ 5 $ 3 $ 9
Direct labor hours per unit 0.4 0.1 0.7
Machine hours per unit 0.2 0.5 0.2
The company has insufficient capacity to fulfill all of the demand for these three products.
If direct labor hours are the constraint, then the ranking of the products from the most
profitable to the least profitable use of the constrained resource is:
A) A, B, C
B) B, A, C
C) C, A, B
D) A, C, B
186) The Wester Corporation produces three products with the following costs and selling
prices:
Product
A B C
Selling price per unit $ 21 $ 12 $ 32
Variable cost per unit $ 11 $ 7 $ 18
Fixed cost per unit $ 5 $ 3 $ 9
Direct labor hours per unit 0.4 0.1 0.7
Machine hours per unit 0.2 0.5 0.2
The company has insufficient capacity to fulfill all of the demand for these three products.
If machine hours are the constraint, then the ranking of the products from the most profitable to
the least profitable use of the constrained resource is:
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A) A, B, C
B) B, C, A
C) A, C, B
D) C, A, B
187) Cranston Corporation makes four products in a single facility. Data concerning these
products appear below:
Products
A B C D
Selling price per unit $ 42.30 $ 50.00 $ 37.60 $ 33.50
Variable manufacturing cost per unit $ 20.80 $ 30.70 $ 21.00
$ 19.90
Variable selling cost per unit $ 2.70 $ 2.10 $ 1.00 $
2.40
Milling machine minutes per unit 3.30 4.10 2.60 1.30
Monthly demand in units 1,000 4,000 3,000 3,000
The milling machines are potentially the constraint in the production facility. A total of 28,200
minutes are available per month on these machines.
How many minutes of milling machine time would be required to satisfy demand for all four
products?
A) 11,000
B) 28,200
C) 23,500
D) 31,400
188) Cranston Corporation makes four products in a single facility. Data concerning these
products appear below:
Products
A B C D
Selling price per unit $ 42.30 $ 50.00 $ 37.60 $ 33.50
Variable manufacturing cost per unit $ 20.80 $ 30.70 $ 21.00
$ 19.90
Variable selling cost per unit $ 2.70 $ 2.10 $ 1.00 $
2.40
Milling machine minutes per unit 3.30 4.10 2.60 1.30
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Monthly demand in units 1,000 4,000 3,000 3,000
The milling machines are potentially the constraint in the production facility. A total of 28,200
minutes are available per month on these machines.
Which product makes the LEAST profitable use of the milling machines? (Round your
intermediate calculations to 2 decimal places.)
A) Product A
B) Product B
C) Product C
D) Product D
189) Cranston Corporation makes four products in a single facility. Data concerning these
products appear below:
Products
A B C D
Selling price per unit $ 42.30 $ 50.00 $ 37.60 $ 33.50
Variable manufacturing cost per unit $ 20.80 $ 30.70 $ 21.00
$ 19.90
Variable selling cost per unit $ 2.70 $ 2.10 $ 1.00 $
2.40
Milling machine minutes per unit 3.30 4.10 2.60 1.30
Monthly demand in units 1,000 4,000 3,000 3,000
The milling machines are potentially the constraint in the production facility. A total of 28,200
minutes are available per month on these machines.
Which product makes the MOST profitable use of the milling machines? (Round your
intermediate calculations to 2 decimal places.)
A) Product A
B) Product B
C) Product C
D) Product D
190) Cranston Corporation makes four products in a single facility. Data concerning these
products appear below:
Products
A B C D
Selling price per unit $ 42.30 $ 50.00 $ 37.60 $ 33.50
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Variable manufacturing cost per unit $ 20.80 $ 30.70 $ 21.00
$ 19.90
Variable selling cost per unit $ 2.70 $ 2.10 $ 1.00 $
2.40
Milling machine minutes per unit 3.30 4.10 2.60 1.30
Monthly demand in units 1,000 4,000 3,000 3,000
The milling machines are potentially the constraint in the production facility. A total of 28,200
minutes are available per month on these machines.
Up to how much should the company be willing to pay for one additional minute of milling
machine time if the company has made the best use of the existing milling machine capacity?
(Round your intermediate calculations to 2 decimal places.)
A) $4.20
B) $11.20
C) $18.80
D) $0.00
191) Bertucci Corporation makes three products that use the current constraint which is a
particular type of machine. Data concerning those products appear below:
TC GL NG
Selling price per unit $ 494.40 $ 449.43 $ 469.68
Variable cost per unit $ 395.20 $ 320.21 $ 373.92
Minutes on the constraint 8.00 7.10 7.60
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.(Round your
intermediate calculations to 2 decimal places.)
A) TC, NG, GL
B) GL, NG, TC
C) GL, TC, NG
D) TC, GL, NG
192) Bertucci Corporation makes three products that use the current constraint which is a
particular type of machine. Data concerning those products appear below:
TC GL NG
Selling price per unit $ 494.40 $ 449.43 $ 469.68
Variable cost per unit $ 395.20 $ 320.21 $ 373.92
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Minutes on the constraint 8.00 7.10 7.60
Assume that sufficient constraint time is available 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? (Round your intermediate calculations to 2 decimal places.)
A) $12.40 per minute
B) $18.20 per minute
C) $129.22 per unit
D) $95.76 per unit
193) Bruce Corporation makes four products in a single facility. These products have the
following unit product costs:
Products
A B C D
Direct materials $ 13.00 $ 8.90 $ 9.70 $ 9.30
Direct labor 18.10 26.10 32.30 39.10
Variable manufacturing overhead 3.00 1.40 1.30 1.90
Fixed manufacturing overhead 25.20 33.50 25.30 35.90
Unit product cost $ 59.30 $ 69.90 $ 68.60 $ 86.20
Additional data concerning these products are listed below.
Products
A B C D
Grinding minutes per unit 2.50 3.00 3.00 2.10
Selling price per unit $ 74.80 $ 92.20 $ 86.10 $ 102.90
Variable selling cost per unit $ 0.90 $ -0.10 $ 2.00 $
0.30
Monthly demand in units 2,700 2,700 1,700 1,900
The grinding machines are potentially the constraint in the production facility. A total of 52,400
minutes are available per month on these machines.
Direct labor is a variable cost in this company.
How many minutes of grinding machine time would be required to satisfy demand for all four
products?
A) 52,400
B) 23,940
C) 5,200
D) 17,190
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194) Bruce Corporation makes four products in a single facility. These products have the
following unit product costs:
Products
A B C D
Direct materials $ 19.90 $ 15.20 $ 20.80 $ 23.20
Direct labor 12.20 8.70 10.50 7.40
Variable manufacturing overhead 1.60 2.10 2.00 2.10
Fixed manufacturing overhead 10.80 11.90 8.80 10.70
Unit product cost $ 44.50 $ 37.90 $ 42.10 $ 43.40
Additional data concerning these products are listed below.
Products
A B C D
Grinding minutes per unit 1.20 0.70 0.60 0.60
Selling price per unit $ 59.30 $ 51.70 $ 59.50 $ 55.60
Variable selling cost per unit $ 3.60 $ 1.50 $ 2.20 $
3.60
Monthly demand in units 4,000 2,000 4,000 2,000
The grinding machines are potentially the constraint in the production facility. A total of 9,000
minutes are available per month on these machines.
Direct labor is a variable cost in this company.
How many minutes of grinding machine time would be required to satisfy demand for all four
products?
A) 10,800
B) 9,800
C) 10,500
D) 12,000
195) Bruce Corporation makes four products in a single facility. These products have the
following unit product costs:
Products
A B C D
Direct materials $ 19.90 $ 15.20 $ 20.80 $ 23.20
Direct labor 12.20 8.70 10.50 7.40
Variable manufacturing overhead $ 1.60 $ 2.10 $ 2.00 $
2.10
Fixed manufacturing overhead 10.80 11.90 8.80 10.70
Unit product cost 44.50 37.90 42.10 43.40
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Additional data concerning these products are listed below.
Products
A B C D
Grinding minutes per unit 1.20 0.70 0.60 0.60
Selling price per unit $ 59.30 $ 51.70 $ 59.50 $ 55.60
Variable selling cost per unit $ 3.60 $ 1.50 $ 2.20 $
3.60
Monthly demand in units 4,000 2,000 4,000 2,000
The grinding machines are potentially the constraint in the production facility. A total of 9,000
minutes are available per month on these machines.
Direct labor is a variable cost in this company.
Which product makes the LEAST profitable use of the grinding machines? (Round your
intermediate calculations to 2 decimal places.)
r
A) Product A
B) Product B
C) Product C
D) Product D
196) Bruce Corporation makes four products in a single facility. These products have the
following unit product costs:
Products
A B C D
Direct materials $ 17.30 $ 21.20 $ 14.20 $ 16.90
Direct labor 19.30 22.70 17.10 11.10
Variable manufacturing overhead 6.10 7.30 9.80 6.80
Fixed manufacturing overhead 29.20 16.10 16.20 18.20
Unit product cost 71.90 67.30 57.30 53.00
Additional data concerning these products are listed below.
Products
A B C D
Grinding minutes per unit 2.30 1.35 0.90 1.20
Selling price per unit $ 87.20 $ 79.60 $ 76.40 $ 71.10
Variable selling cost per unit $ 3.05 $ 3.75 $ 4.50 $
5.20
Monthly demand in units 4,700 3,700 3,700 5,700
Version 1 108
The grinding machines are potentially the constraint in the production facility. A total of 10,500
minutes are available per month on these machines.
Direct labor is a variable cost in this company.
Which product makes the MOST profitable use of the grinding machines? (Round your
intermediate calculations to 2 decimal places.)
A) Product A
B) Product B
C) Product D
D) Product C
197) Bruce Corporation makes four products in a single facility. These products have the
following unit product costs:
Products
A B C D
Direct materials $ 19.90 $ 15.20 $ 20.80 $ 23.20
Direct labor 12.20 8.70 10.50 7.40
Variable manufacturing overhead $ 1.60 $ 2.10 $ 2.00 $
2.10
Fixed manufacturing overhead 10.80 11.90 8.80 10.70
Unit product cost 44.50 37.90 42.10 43.40
Additional data concerning these products are listed below.
Products
A B C D
Grinding minutes per unit 1.20 0.70 0.60 0.60
Selling price per unit $ 59.30 $ 51.70 $ 59.50 $ 55.60
Variable selling cost per unit $ 3.60 $ 1.50 $ 2.20 $
3.60
Monthly demand in units 4,000 2,000 4,000 2,000
The grinding machines are potentially the constraint in the production facility. A total of 9,000
minutes are available per month on these machines.
Direct labor is a variable cost in this company.
Which product makes the MOST profitable use of the grinding machines? (Round your
intermediate calculations to 2 decimal places.)
Version 1 109
A) Product A
B) Product B
C) Product C
D) Product D
198) Bruce Corporation makes four products in a single facility. These products have the
following unit product costs:
Products
A B C D
Direct materials $ 13.50 $ 9.40 $ 10.20 $ 9.80
Direct labor 18.60 26.60 32.80 39.60
Variable manufacturing overhead 3.50 1.90 1.80 2.40
Fixed manufacturing overhead 25.70 34.00 25.80 36.40
Unit product cost 61.30 71.90 70.60 88.20
Additional data concerning these products are listed below.
Products
A B C D
Grinding minutes per unit 3.00 4.00 3.50 2.60
Selling price per unit $ 75.30 $ 92.70 $ 86.60 $ 103.40
Variable selling cost per unit $ 1.40 $ 0.40 $ 2.50 $
0.80
Monthly demand in units 3,200 3,200 2,200 2,400
The grinding machines are potentially the constraint in the production facility. A total of 35,900
minutes are available per month on these machines.
Direct labor is a variable cost in this company.
Up to how much should the company be willing to pay for one additional minute of grinding
machine time if the company has made the best use of the existing grinding machine capacity?
(Round your intermediate calculations to 2 decimal places.)
A) $19.54
B) $5.62
C) $11.23
D) $14.94
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199) Bruce Corporation makes four products in a single facility. These products have the
following unit product costs:
Products
A B C D
Direct materials $ 19.90 $ 15.20 $ 20.80 $ 23.20
Direct labor 12.20 8.70 10.50 7.40
Variable manufacturing overhead $ 1.60 $ 2.10 $ 2.00 $
2.10
Fixed manufacturing overhead 10.80 11.90 8.80 10.70
Unit product cost 44.50 37.90 42.10 43.40
Additional data concerning these products are listed below.
Products
A B C D
Grinding minutes per unit 1.20 0.70 0.60 0.60
Selling price per unit $ 59.30 $ 51.70 $ 59.50 $ 55.60
Variable selling cost per unit $ 3.60 $ 1.50 $ 2.20 $
3.60
Monthly demand in units 4,000 2,000 4,000 2,000
The grinding machines are potentially the constraint in the production facility. A total of 9,000
minutes are available per month on these machines.
Direct labor is a variable cost in this company.
Up to how much should the company be willing to pay for one additional minute of grinding
machine time if the company has made the best use of the existing grinding machine capacity?
(Round your intermediate calculations and final answer to 2 decimal places.)
A) $18.33
B) $12.20
C) $0.00
D) $19.30
200) The constraint at Pickrel Corporation is time on a particular machine. The company
makes three products that use this machine. Data concerning those products appear below:
VD JT SM
Selling price per unit $ 344.85 $ 415.40 $ 119.32
Variable cost per unit $ 270.18 $ 310.88 $ 91.96
Minutes on the constraint 5.70 6.70 1.90
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. (Round your
intermediate calculations to 2 decimal places.)
Version 1 111
A) JT, SM, VD
B) JT, VD, SM
C) VD, SM, JT
D) SM, VD, JT
201) The constraint at Pickrel Corporation is time on a particular machine. The company
makes three products that use this machine. Data concerning those products appear below:
VD JT SM
Selling price per unit $ 344.85 $ 415.40 $ 119.32
Variable cost per unit $ 270.18 $ 310.88 $ 91.96
Minutes on the constraint 5.70 6.70 1.90
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 this constrained resource? (Round your intermediate calculations to 2 decimal
places.)
A) $15.60 per minute
B) $13.10 per minute
C) $104.52 per unit
D) $27.36 per unit
202) The Carter Corporation makes products A and B in a joint process from a single input, R.
During a typical production run, 50,000 units of R yield 20,000 units of A and 30,000 units of B
at the split-off point. Joint production costs total $90,000 per production run. The unit selling
price for A is $4.00 and for B is $3.80 at the split-off point. However, B can be processed further
at a total cost of $60,000 and then sold for $7.00 per unit.
In a decision between selling B at the split-off point or processing B further, which of the
following items is not relevant:
A) the $60,000 cost to process B beyond the split-off point.
B) the $3.80 unit sales price of B at the split-off point.
C) the portion of the $90,000 joint production cost allocated to B.
D) the $7 unit selling price for B after further processing.
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203) The Carter Corporation makes products A and B in a joint process from a single input, R.
During a typical production run, 50,000 units of R yield 20,000 units of A and 30,000 units of B
at the split-off point. Joint production costs total $90,000 per production run. The unit selling
price for A is $4.00 and for B is $3.80 at the split-off point. However, B can be processed further
at a total cost of $60,000 and then sold for $7.00 per unit.
If product B is processed beyond the split-off point, the financial advantage (disadvantage) as
compared to selling B at the split-off point would be:
A) $36,000 per production run
B) $96,000 per production run
C) ($42,000) per production run
D) ($10,000) per production run
204) Mae Refiners, Incorporated, processes sugar cane that it purchases from farmers. Sugar
cane is processed in batches. A batch of sugar cane costs $60 to buy from farmers and $13 to
crush in the company’s plant. Two intermediate products, cane fiber and cane juice, emerge from
the crushing process. The cane fiber can be sold as is for $29 or processed further for $13 to
make the end product industrial fiber that is sold for $61. The cane juice can be sold as is for $40
or processed further for $28 to make the end product molasses that is sold for $67.
What is the financial advantage (disadvantage) for the company from processing one batch of
sugar cane into the end products industrial fiber and molasses rather than not processing that
batch at all?
A) ($4) per batch
B) ($114) per batch
C) $18 per batch
D) $14 per batch
Version 1 113
205) Mae Refiners, Incorporated, processes sugar cane that it purchases from farmers. Sugar
cane is processed in batches. A batch of sugar cane costs $60 to buy from farmers and $13 to
crush in the company’s plant. Two intermediate products, cane fiber and cane juice, emerge from
the crushing process. The cane fiber can be sold as is for $29 or processed further for $13 to
make the end product industrial fiber that is sold for $61. The cane juice can be sold as is for $40
or processed further for $28 to make the end product molasses that is sold for $67.
What is the financial advantage (disadvantage) for the company from processing the
intermediate product cane juice into molasses rather than selling it as is?
A) ($74) per batch
B) ($14) per batch
C) ($1) per batch
D) ($38) per batch
206) Mae Refiners, Incorporated, processes sugar cane that it purchases from farmers. Sugar
cane is processed in batches. A batch of sugar cane costs $60 to buy from farmers and $13 to
crush in the company’s plant. Two intermediate products, cane fiber and cane juice, emerge from
the crushing process. The cane fiber can be sold as is for $29 or processed further for $13 to
make the end product industrial fiber that is sold for $61. The cane juice can be sold as is for $40
or processed further for $28 to make the end product molasses that is sold for $67.
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 be processed into industrial fiber; Cane juice should NOT be
processed into molasses.
C) Cane fiber should NOT 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.
Version 1 114
207) Boney Corporation processes sugar beets that it purchases from farmers. Sugar beets are
processed in batches. A batch of sugar beets costs $60 to buy from farmers and $19 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 $30 or processed further for $29 to make
the end product industrial fiber that is sold for $77. The beet juice can be sold as is for $51 or
processed further for $33 to make the end product refined sugar that is sold for $77.
What is the financial advantage (disadvantage) for the company from processing one batch of
sugar beets into the end products industrial fiber and refined sugar rather than not processing that
batch at all?
A) ($141) per batch
B) ($4) per batch
C) $13 per batch
D) $17 per batch
208) Boney Corporation processes sugar beets that it purchases from farmers. Sugar beets are
processed in batches. A batch of sugar beets costs $53 to buy from farmers and $18 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 $25 or processed further for $18 to make
the end product industrial fiber that is sold for $39. The beet juice can be sold as is for $32 or
processed further for $28 to make the end product refined sugar that is sold for $79.
What is the financial advantage (disadvantage) for the company from processing one batch of
sugar beets into the end products industrial fiber and refined sugar rather than not processing that
batch at all?
A) $15 per batch
B) ($14) per batch
C) ($117) per batch
D) $1 per batch
Version 1 115
209) Boney Corporation processes sugar beets that it purchases from farmers. Sugar beets are
processed in batches. A batch of sugar beets costs $49 to buy from farmers and $14 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 $19 or processed further for $18 to make
the end product industrial fiber that is sold for $57. The beet juice can be sold as is for $40 or
processed further for $22 to make the end product refined sugar that is sold for $57.
What is the financial advantage (disadvantage) for the company from processing the
intermediate product beet juice into refined sugar rather than selling it as is?
A) ($69)
B) ($5)
C) ($37)
D) ($20)
210) Boney Corporation processes sugar beets that it purchases from farmers. Sugar beets are
processed in batches. A batch of sugar beets costs $53 to buy from farmers and $18 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 $25 or processed further for $18 to make
the end product industrial fiber that is sold for $39. The beet juice can be sold as is for $32 or
processed further for $28 to make the end product refined sugar that is sold for $79.
What is the financial advantage (disadvantage) for the company from processing the
intermediate product beet juice into refined sugar rather than selling it as is?
A) $1 per batch
B) ($17) per batch
C) $19 per batch
D) ($52) per batch
211) Boney Corporation processes sugar beets that it purchases from farmers. Sugar beets are
processed in batches. A batch of sugar beets costs $53 to buy from farmers and $18 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 $25 or processed further for $18 to make
the end product industrial fiber that is sold for $39. The beet juice can be sold as is for $32 or
processed further for $28 to make the end product refined sugar that is sold for $79.
Which of the intermediate products should be processed further?
Version 1 116
A) beet fiber should be processed into industrial fiber; beet juice should be processed
into refined sugar
B) beet fiber should NOT 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 be processed into industrial fiber; beet juice should NOT be
processed into refined sugar
212) Dock Corporation makes two products from a common input. Joint processing costs up to
the split-off point total $33,600 a year. The company allocates these costs to the joint products on
the basis of their total sales values at the split-off point. Each product may be sold at the split-off
point or processed further. Data concerning these products appear below:
Product X Product Y Total
Allocated joint processing costs $ 16,800 $ 16,800 $ 33,600
Sales value at split-off point $ 24,000 $ 24,000 $ 48,000
Costs of further processing $ 15,000 $ 18,700 $ 33,700
Sales value after further processing $ 35,500 $ 45,100 $ 80,600
What is the financial advantage (disadvantage) for the company of processing Product X beyond
the split-off point?
A) ($3,500)
B) $27,700
C) $20,500
D) $3,700
213) Dock Corporation makes two products from a common input. Joint processing costs up to
the split-off point total $33,600 a year. The company allocates these costs to the joint products on
the basis of their total sales values at the split-off point. Each product may be sold at the split-off
point or processed further. Data concerning these products appear below:
Product X Product Y Total
Allocated joint processing costs 16,800 16,800 33,600
Sales value at split-off point $ 24,000 $ 24,000 $ 48,000
Costs of further processing $ 15,000 $ 18,700 $ 33,700
Sales value after further processing $ 35,500 $ 45,100 $ 80,600
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What is the financial advantage (disadvantage) for the company of processing Product Y beyond
the split-off point?
A) $9,600
B) $2,400
C) $33,600
D) $26,400
214) Dock Corporation makes two products from a common input. Joint processing costs up to
the split-off point total $33,600 a year. The company allocates these costs to the joint products on
the basis of their total sales values at the split-off point. Each product may be sold at the split-off
point or processed further. Data concerning these products appear below:
Product X Product Y Total
Allocated joint processing costs 16,800 800 600
Sales value at split-off point $ 24,000 $ 24,000 $ 48,000
Costs of further processing $ 15,000 $ 18,700 $ 33,700
Sales value after further processing $ 35,500 $ 45,100 $ 80,600
What is the minimum amount the company should accept for Product X if it is to be sold at the
split-off point?
A) $31,800
B) $20,500
C) $16,800
D) $35,500
215) A cost that can be avoided by choosing one alternative over another is relevant for
decision purposes.
⊚ true
⊚ false
216) Sunk costs are never relevant in decision making.
⊚ true
⊚ false
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217) Future costs that do not differ between the alternatives in a decision are avoidable costs.
⊚ true
⊚ false
218) It may be a good decision to replace an asset before its original cost has been fully
recovered through increased revenues or decreased costs.
⊚ true
⊚ false
219) Consistency demands that a cost that is relevant in one decision be regarded as relevant in
other decisions as well.
⊚ true
⊚ false
220) Sunk costs and future costs that do not differ between the alternatives may or may not be
relevant in a decision.
⊚ true
⊚ false
221) Fixed costs are sunk costs.
⊚ true
⊚ false
222) A cost that is traceable to a segment through activity-based costing is always an
avoidable cost for decision making.
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⊚ true
⊚ false
223) Variable costs are always relevant costs in decisions.
⊚ true
⊚ false
224) A cost that is assigned to a product using activity-based costing may or may not be a
relevant cost in a decision involving that product.
⊚ true
⊚ false
225) Opportunity costs represent costs that can be reduced by effective management of
operations.
⊚ true
⊚ false
226) Future costs that do differ among the alternatives are not relevant in a decision.
⊚ true
⊚ false
227) Sunk costs are costs that have proven to be unproductive.
⊚ true
⊚ false
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228) Fixed costs may be relevant in a decision.
⊚ true
⊚ false
229) Avoidable costs are irrelevant costs in decisions.
⊚ true
⊚ false
230) The book value of an old machine is always considered an opportunity cost in a decision.
⊚ true
⊚ false
231) . A cost that will be incurred regardless of which alternative is selected is not relevant
when choosing between the alternatives.
⊚ true
⊚ false
232) A complete income statement need not be prepared as part of a differential cost analysis.
⊚ true
⊚ false
233) An avoidable cost is a sunk cost that can be eliminated (in whole or in part) as a result of
choosing one alternative over another.
⊚ true
⊚ false
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234) The variable costs of a product are relevant in a decision concerning whether to eliminate
the product.
⊚ true
⊚ false
235) Fixed costs are irrelevant in decisions about whether a product should be dropped.
⊚ true
⊚ false
236) A product whose revenues do not cover its variable costs and its traceable fixed costs
should usually be dropped.
⊚ true
⊚ false
237) In a decision to drop a product, the product should be charged for rent in proportion to the
space it occupies even if the space has no alternative use and the rental payment is unavoidable.
⊚ true
⊚ false
238) When a company is involved in more than one activity in the entire value chain, it is
vertically integrated.
⊚ true
⊚ false
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239) A vertically integrated company is less dependent on its suppliers than a company that is
not vertically integrated.
⊚ true
⊚ false
240) A disadvantage of vertical integration is that by pooling demand for parts from a number
of companies, a supplier may be able to enjoy economies of scale that result in higher quality and
lower cost than if every company makes its own parts.
⊚ true
⊚ false
241) In a special order situation that involves using capacity that is not idle, opportunity costs
are zero.
⊚ true
⊚ false
242) In a special order situation, any fixed cost associated with the order would be irrelevant.
⊚ true
⊚ false
243) When a company has a production constraint, total contribution margin will be
maximized by emphasizing the products with the highest contribution margin per unit of the
constrained resource.
⊚ true
⊚ false
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244) When a company has a production constraint, the product with the lowest contribution
margin per unit of the constrained resource should usually be given highest priority.
⊚ true
⊚ false
245) In a factory operating at capacity, every machine and person should be working at the
maximum possible rate.
⊚ true
⊚ false
246) One way to increase the effective utilization of a bottleneck is to reduce the number of
defective units.
⊚ true
⊚ false
247) Eliminating nonproductive processing time is particularly important in a bottleneck
operation.
⊚ true
⊚ false
248) Payment of overtime to a worker in order to relax a production constraint could increase
the profits of a company.
⊚ true
⊚ false
249) The term joint cost is used to describe the costs incurred up to the split-off point in a
process involving joint products.
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⊚ true
⊚ false
250) The split-off point in a process that produces joint products is the point in the
manufacturing process at which the joint products can be recognized as separate products.
⊚ true
⊚ false
251) An avoidable fixed production cost incurred before the split-off point in a joint process is
relevant in a sell or process further decision.
⊚ true
⊚ false
252) Two or more products that are produced from a common input are known as joint
products.
⊚ true
⊚ false
253) It is profitable to continue processing joint products after the split-off point if their total
revenues exceed the joint costs.
⊚ true
⊚ false
254) Quamma Corporation makes a product that has the following costs:
Per Unit Per Year
Direct materials $ 18.40
Direct labor $ 17.30
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Variable manufacturing overhead $ 2.10
Fixed manufacturing overhead $ 285,200
Variable selling and administrative expenses $ 3.40
Fixed selling and administrative expenses $ 473,800
The company uses the absorption costing approach to cost-plus pricing as described in the text.
The pricing calculations are based on budgeted production and sales of 23,000 units per year.
The company has invested $280,000 in this product and expects a return on investment of 8%.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price of the product using the absorption costing approach.
255) Ritner Corporation manufactures a product that has the following costs:
Per Unit Per Year
Direct materials $ 22.20
Direct labor $ 13.70
Variable manufacturing overhead $ 2.10
Fixed manufacturing overhead $ 449,500
Variable selling and administrative expenses $ 1.50
Fixed selling and administrative expenses $ 591,600
The company uses the absorption costing approach to cost-plus pricing as described in the text.
The pricing calculations are based on budgeted production and sales of 29,000 units per year.
The company has invested $360,000 in this product and expects a return on investment of 9%.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price of the product using the absorption costing approach.
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256) Hill Corporation is contemplating the introduction of a new product. The company has
gathered the following information concerning the product:
Number of units to be produced and sold each year 10,000
Investment required by the company $ 200,000
Projected unit manufacturing cost $ 30
Projected annual selling and administrative expenses $ 40,000
Desired rate of return on investment 10%
The company uses the absorption costing approach to cost-plus pricing as described in the text.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price.
c. If the price computed in “b” above is charged, and costs turn out as projected, can the
company be assured that no loss will be sustained on the new product? Explain.
257) The management of Landstrom Corporation would like to set the selling price on a new
product using the absorption costing approach to cost-plus pricing. The company’s accounting
department has supplied the following estimates for the new product:
Per Unit Per Year
Direct materials $ 28
Direct labor $ 12
Variable manufacturing overhead $ 9
Fixed annual manufacturing overhead $ 132,000
Variable selling and administrative expenses $ 4
Fixed annual selling and administrative expenses $ 30,000
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Management plans to produce and sell 6,000 units of the new product annually. The new product
would require an investment of $1,036,200 and has a required return on investment of 10%.
Required:
a. Determine the unit product cost for the new product.
b. Determine the markup percentage on absorption cost for the new product.
c. Determine the selling price for the new product using the absorption costing approach.
258) Bohmker Corporation is introducing a new product whose direct materials cost is $25 per
unit, direct labor cost is $13 per unit, variable manufacturing overhead is $9 per unit, and
variable selling and administrative expense is $4 per unit. The annual fixed manufacturing
overhead associated with the product is $18,000 and its annual fixed selling and administrative
expense is $9,000. Management plans to produce and sell 1,000 units of the new product
annually. The new product would require an investment of $110,500 and has a required return on
investment of 10%. Management would like to set the selling price on a new product using the
absorption costing approach to cost-plus pricing.
Required:
a. Determine the unit product cost for the new product.
b. Determine the markup percentage on absorption cost for the new product.
c. Determine the selling price for the new product using the absorption costing approach.
259) Buzby Corporation manufactures numerous products, one of which is called Epsilon39.
The company has provided the following data about this product:
Unit sales (a) 60,000
Selling price per unit $ 43.00
Variable cost per unit 25.00
Contribution margin per unit (b) $ 18.00
Total contribution margin (a) × (b) $ 1,080,000
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Traceable fixed expense 950,000
Net operating income $ 130,000
Required:
a. Management is considering decreasing the price of Epsilon39 by 5%, from $43.00 to $40.85.
The company’s marketing managers estimate that this price reduction would increase unit sales
by 10%, from 60,000 units to 66,000 units. Assuming that the total traceable fixed expense does
not change, what net operating income will Epsilon39 earn at a price of $40.85 if this sales
forecast is correct?
b. Assuming that the total traceable fixed expense does not change, how many units of
Epsilon39 would Buzby need to sell at a price of $40.85 to earn the same net operating income
that it currently earns at a price of $43.00? (Round your answer up to the nearest whole
number.)
260) Ohanlon Corporation manufactures numerous products, one of which is called Delta27.
The company has provided the following data about this product:
Unit sales (a) 180,000
Selling price per unit $ 62.00
Variable cost per unit 41.00
Contribution margin per unit (b) $ 21.00
Total contribution margin (a) × (b) $ 3,780,000
Traceable fixed expense 3,360,000
Net operating income $ 420,000
Required:
a. Management is considering increasing the price of Delta27 by 5%, from $62.00 to $65.10.
The company’s marketing managers estimate that this price hike would decrease unit sales by
10%, from 180,000 units to 162,000 units. Assuming that the total traceable fixed expense does
not change, what net operating income will Delta27 earn at a price of $65.10 if this sales forecast
is correct?
b. Assuming that the total traceable fixed expense does not change, if Ohanlon increases the
price of Delta27 to $65.10, what percentage change in unit sales would provide the same net
operating income that it currently earns at a price of $62.00? (Round your answer to the
nearest one-tenth of a percent.)
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261) Eytchison Industrial Products Incorporated has developed a new industrial grinder, model
OK-23, that is designed to offer superior performance to a comparable grinder sold by
Eytchison’s main competitor. The competing grinder sells for $33,000 and needs to be replaced
after 1,000 hours of use. It also requires $6,000 of preventive maintenance during its useful life.
Model OK-23’s performance capabilities are similar to the competing grinder with two important
exceptions—it needs to be replaced only after 3,000 hours of use and it requires $12,000 of
preventive maintenance during its useful life.
Required:
From a value-based pricing standpoint what is model OK-23’s economic value to the customer
over its 3,000 hour life?
262) Bochenski Mechanical Corporation has developed a new industrial grinder—model UF-
48—that has been designed to outperform a competitor’s best-selling industrial grinder. Model
UF-48 has a useful life of 80,000 hours of service and its operating cost is $1.00 per hour. In
contrast, the competitor’s product has a useful life of 20,000 hours of service and has operating
costs that average $1.80 per hour. The competitor’s industrial grinder sells for $129,000.
Bochenski has not yet established a selling price for model UF-48.
Required:
From a value-based pricing standpoint what is the differentiation value offered by model UF-
48 relative to the competitor’s offering for each 80,000 hours of service?
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263) Gama Avionics Corporation has developed a new high pressure pump—model SF-22—
that has been designed to outperform a competitor’s best-selling high pressure pump. The
competitor’s product has a useful life of 30,000 hours of service, has operating costs that average
$1.70 per hour, and sells for $109,000. In contrast, model SF-22 has a useful life of 60,000 hours
of service and its operating cost is $1.10 per hour. Gama has not yet established a selling price
for model SF-22.
Required:
From a value-based pricing standpoint what is model SF–22’s economic value to the customer
over its 60,000 hour useful life?
264) Management of Niemczyk Corporation is considering a new product, an outdoor speaker
that would have a selling price of $31 per unit and projected sales of 10,000 units. Launching the
new product would require an investment of $700,000. The desired return on investment is 16%.
Required:
Determine the target cost per unit for the outdoor speaker.
265) Lodholz Corporation would like to use target costing for a new product that is under
consideration. At a selling price of $93 per unit, management projects sales of 10,000 units. The
new product would require an investment of $900,000. The desired return on investment is 17%.
Required:
Determine the target cost per unit for the new product.
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266) Turnhilm, Incorporated is considering adding a small electric mower to its product line.
Management believes that in order to be competitive, the mower cannot be priced above $139.
The company requires a minimum return of 25% on its investments. Launching the new product
would require an investment of $8,000,000. Sales are expected to be 40,000 units of the mower
per year.
Required:
Compute the target cost of a mower.
267) Management of Thebeau, Incorporated, is considering a new product that would have a
selling price of $72 per unit and projected sales of 40,000 units. The new product would require
an investment of $600,000. The desired return on investment is 19%.
Required:
Determine the target cost per unit for the new product.
268) Which of the following items are included in the cost base under the absorption approach
to cost-plus pricing?
Variable Cost Fixed Cost
Production Selling Production Selling
A) Yes Yes Yes No
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B) No Yes No Yes
C) Yes Yes No No
D) Yes No Yes No
A) Choice A
B) Choice B
C) Choice C
D) Choice D
269) Holding all other things constant, if the expected unit sales increase, then the markup
under absorption costing will:
A) increase.
B) decrease.
C) remain the same.
D) The effect cannot be determined.
270) Demand for a product is said to be elastic if a change in price has:
A) no effect on the volume of units sold.
B) substantial effect on the volume of units sold.
C) little effect on the volume of units sold.
D) little effect on the volume of units produced.
271) Seamons Corporation has the following information available on Product K:
Number of units sold each year 60,000
Unit product cost $ 40
Investment in Product K $ 600,000
Required return on investment 18%
The company uses the absorption costing approach to cost-plus pricing described in the text and
a 40% markup. Based on these data, the company’s total selling and administrative expenses
associated with Product K each year are:
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A) $132,000
B) $852,000
C) $528,000
D) $172,800
272) The following information is available on Bruder Incorporated’s Product A:
Number of units sold each year 28,000
Selling price per unit $ 70
Unit product cost $ 60
Investment in Product A $ 580,000
Required return on investment 12%
The company uses the absorption costing approach to cost-plus pricing described in the text.
Based on these data, the total selling and administrative expenses each year are: (Round your
intermediate calculations to 2 decimal places.)
A) $216,000
B) $338,000
C) $1,100,000
D) $285,600
273) The following information is available on Bruder Incorporated’s Product A:
Number of units sold each year 10,000
Selling price per unit $ 80
Unit product cost $ 50
Investment in Product A $ 400,000
Required return on investment 15%
The company uses the absorption costing approach to cost-plus pricing described in the text.
Based on these data, the total selling and administrative expenses each year are:
A) $240,000
B) $300,000
C) $140,000
D) $200,000
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274) Marvel Corporation estimates that the following costs and activity would be associated
with the manufacture and sale of product Y:
Number of units sold annually 20,000
Required investment in assets $ 400,000
Unit product cost $ 25
Selling and administrative expenses $ 130,000
If the company uses the absorption costing approach to cost-plus pricing described in the text
and desires a 15% rate of return on investment (ROI), the required markup on absorption cost for
product Y would be:
A) 12%
B) 15%
C) 26%
D) 38%
275) Ladle Corporation uses the absorption costing approach to cost-plus pricing described in
the text to set prices for its products. Based on budgeted sales of 88,000 units next year, the unit
product cost of a particular product is $46.00. The company’s selling and administrative expenses
for this product are budgeted to be $1,905,000 in total for the year. The company has invested
$269,000 in this product and expects a return on investment of 12%.
The markup on absorption cost for this product would be closest to:
A) 47.9%
B) 47.1%
C) 58.9%
D) 12.0%
276) Ladle Corporation uses the absorption costing approach to cost-plus pricing described in
the text to set prices for its products. Based on budgeted sales of 63,000 units next year, the unit
product cost of a particular product is $39.00. The company’s selling and administrative expenses
for this product are budgeted to be $1,020,600 in total for the year. The company has invested
$560,000 in this product and expects a return on investment of 11%.
The markup on absorption cost for this product would be closest to:
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A) 12.0%
B) 41.5%
C) 52.5%
D) 44.0%
277) Willow Corporation manufactures and sells 20,000 units of Product Z each year. In order
to produce and sell this many units, it has been necessary for the company to make an investment
of $500,000 in Product Z. The company requires a 20% rate of return on all investments in
products. Selling and administrative expenses associated with Product Z total $200,000 per year.
The unit product cost of Product Z is $20. The company uses the absorption costing approach to
cost-plus pricing described in the text. The selling price for Product Z is:
A) $25
B) $30
C) $35
D) $40
278) Jaakola Corporation makes a product with the following costs:
Per Unit Per Year
Direct materials $ 17.00
Direct labor $ 22.00
Variable manufacturing overhead $ 4.00
Fixed manufacturing overhead $ 504,000
Variable selling and administrative expenses $ 4.90
Fixed selling and administrative expenses $ 319,200
The company uses the absorption costing approach to cost-plus pricing described in the text. The
pricing calculations are based on budgeted production and sales of 28,000 units per year. The
company has invested $360,000 in this product and expects a return on investment of 15%. The
markup on absorption cost would be closest to:
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A) 27.1%
B) 29.9%
C) 84.3%
D) 15.0%
279) Minden Corporation estimates that the following costs and activity would be associated
with the manufacture and sale of product A:
Number of units sold annually 45,000
Required investment $ 650,000
Unit product cost $ 44
Selling and administrative expenses $ 166,400
If the company uses the absorption costing approach to cost-plus pricing described in the text
and desires a 14% rate of return on investment (ROI), the required markup on absorption cost for
Product A would be closest to:
A) 14%
B) 45%
C) 5%
D) 13%
280) Minden Corporation estimates that the following costs and activity would be associated
with the manufacture and sale of product A:
Number of units sold annually 40,000
Required investment $ 800,000
Unit product cost $ 25
Selling and administrative expenses $ 600,000
If the company uses the absorption costing approach to cost-plus pricing described in the text
and desires a 15% rate of return on investment (ROI), the required markup on absorption cost for
Product A would be closest to:
A) 12%
B) 15%
C) 60%
D) 72%
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281) Kirgan, Incorporated, manufactures a product with the following costs:
Per Unit Per Year
Direct materials $ 26.60
Direct labor $ 15.60
Variable manufacturing overhead $ 3.80
Fixed manufacturing overhead $ 1,597,400
Variable selling and administrative expenses $ 3.70
Fixed selling and administrative expenses $ 1,565,500
The company uses the absorption costing approach to cost-plus pricing described in the text. The
pricing calculations are based on budgeted production and sales of 98,000 units per year.
The company has invested $390,000 in this product and expects a return on investment of 16%.
The selling price based on the absorption costing approach would be closest to: (Do not round
intermediate calculations.)
A) $50.70
B) $82.61
C) $83.40
D) $50.80
282) Kirgan, Incorporated, manufactures a product with the following costs:
Per Unit Per Year
Direct materials $ 24.60
Direct labor $ 17.90
Variable manufacturing overhead $ 4.80
Fixed manufacturing overhead $ 718,200
Variable selling and administrative expenses $ 4.50
Fixed selling and administrative expenses $ 723,900
The company uses the absorption costing approach to cost-plus pricing described in the text. The
pricing calculations are based on budgeted production and sales of 57,000 units per year.
The company has invested $140,000 in this product and expects a return on investment of 13%.
The selling price based on the absorption costing approach would be closest to:
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A) $77.42
B) $99.65
C) $77.10
D) $61.13
283) Magney, Incorporated, uses the absorption costing approach to cost-plus pricing
described in the text to set prices for its products. Based on budgeted sales of 32,000 units next
year, the unit product cost of a particular product is $62.90. The company’s selling and
administrative expenses for this product are budgeted to be $830,800 in total for the year. The
company has invested $580,000 in this product and expects a return on investment of 10%.
The selling price for this product based on the absorption costing approach would be closest to:
(Do not round intermediate calculations.)
A) $90.68
B) $121.70
C) $69.19
D) $88.86
284) Magney, Incorporated, uses the absorption costing approach to cost-plus pricing
described in the text to set prices for its products. Based on budgeted sales of 84,000 units next
year, the unit product cost of a particular product is $40.80. The company’s selling and
administrative expenses for this product are budgeted to be $1,705,200 in total for the year. The
company has invested $300,000 in this product and expects a return on investment of 14%.
The selling price for this product based on the absorption costing approach would be closest to:
A) $92.25
B) $61.60
C) $46.51
D) $61.10
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285) Perwin Corporation estimates that an investment of $760,000 would be needed to
produce and sell 54,000 units of Product B each year. At this level of activity, the unit product
cost would be $25. Selling and administrative expenses would total $689,250 each year. The
company uses the absorption costing approach to cost-plus pricing described in the text. If a 15%
rate of return on investment is desired, then the required markup for Product B would be closest
to: (Do not round intermediate calculations.)
A) 15.00%
B) 51.06%
C) 59.50%
D) 48.94%
286) Perwin Corporation estimates that an investment of $800,000 would be needed to
produce and sell 50,000 units of Product B each year. At this level of activity, the unit product
cost would be $50. Selling and administrative expenses would total $400,000 each year. The
company uses the absorption costing approach to cost-plus pricing described in the text. If a 20%
rate of return on investment is desired, then the required markup for Product B would be closest
to:
A) 20%
B) 22%
C) 24%
D) 26%
287) Reppond Corporation manufactures numerous products, one of which is called
Gamma38. The company has provided the following data about this product:
Unit sales (a) 170,000
Selling price per unit $ 99.00
Variable cost per unit $ 66.00
Traceable fixed expense 4,990,000
Assume that the total traceable fixed expense does not change. How many units of product
Gamma38 would Reppond need to sell at a price of $94.05 to earn the same net operating
income that it currently earns at a price of $99.00? (Round your answer up to the nearest
whole number.)
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A) 177,897
B) 200,000
C) 151,212
D) 187,000
288) Acri Corporation manufactures numerous products, one of which is called Omicron09.
The company has provided the following data about this product:
Unit sales (a) 100,000
Selling price per unit $ 78.00
Variable cost per unit 49.00
Contribution margin per unit (b) $ 29.00
Total contribution margin (a) × (b) $ 2,900,000
Traceable fixed expense 2,480,000
Net operating income $ 420,000
Assume that the total traceable fixed expense does not change. If Acri decreases the price of
Omicron09 to $71.76, what percentage change in unit sales would provide the same net
operating income as is currently being earned at a price of $78.00? (Your answer should be
rounded to the nearest 0.1%.)
A) 27.4%
B) 9.0%
C) −20.0%
D) −14.5%
289) Hammen Corporation manufactures numerous products, one of which is called
Omicron43. The company has provided the following data about this product:
Unit sales (a) 150,000
Selling price per unit $ 18.00
Variable cost per unit $ 10.00
Traceable fixed expense $ 1,040,000
Assume that the total traceable fixed expense does not change. If Hammen decreases the price of
Omicron43 to $16.20, what percentage change in unit sales would provide the same net
operating income as is currently being earned at a price of $18.00? (Your answer should be
rounded to the nearest 0.1%.)
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A) 11.8%
B) −20.0%
C) 29.0%
D) −13.3%
290) Starowicz Corporation manufactures numerous products, one of which is called Beta10.
The company has provided the following data about this product:
Unit sales (a) 120,000
Selling price per unit $ 12.00
Variable cost per unit 8.00
Contribution margin per unit (b) $ 4.00
Total contribution margin (a) × (b) $ 480,000
Traceable fixed expense 420,000
Net operating income $ 60,000
Management is considering decreasing the price of Beta10 by 7%, from $12.00 to $11.16. The
company’s marketing managers estimate that this price reduction would increase unit sales by
15%, from 120,000 units to 138,000 units. Assuming that the total traceable fixed expense does
not change, what net operating income will product Beta-10 earn at a price of $11.16 if this sales
forecast is correct?
A) −$40,800
B) $16,080
C) $379,200
D) $436,080
291) Whittenton Corporation manufactures numerous products, one of which is called Tau14.
The company has provided the following data about this product:
Unit sales (a) 50,000
Selling price per unit $ 83.00
Variable cost per unit $ 59.00
Traceable fixed expense $ 1,100,000
What is the net operating income for product Tau14 at the current price?
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A) $100,000
B) $3,050,000
C) $1,200,000
D) $4,150,000
292) Hoder Corporation manufactures numerous products, one of which is called Gamma45.
The company has provided the following data about this product:
Unit sales (a) 60,000
Selling price per unit $ 41.00
Variable cost per unit 29.00
Contribution margin per unit (b) $ 12.00
Total contribution margin (a)× (b) $ 720,000
Traceable fixed expense 680,000
Net operating income $ 40,000
Assume that the total traceable fixed expense does not change. How many units of product
Gamma45 would Hoder need to sell at a price of $38.95 to earn the same net operating income
that it currently earns at a price of $41.00? (Round your answer up to the nearest whole
number.)
A) 56,667
B) 72,362
C) 68,342
D) 66,000
293) Cogdill Corporation manufactures numerous products, one of which is called Epsilon78.
The company has provided the following data about this product:
Unit sales (a) 170,000
Selling price per unit $ 19.00
Variable cost per unit $ 15.00
Traceable fixed expense $ 580,000
Assume that the total traceable fixed expense does not change. If Cogdill increases the price of
Epsilon78 to $19.76, what percentage change in unit sales would provide the same net operating
income as is currently being earned at a price of $19.00? (Your answer should be rounded to
the nearest 0.1%.)
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A) −14.7%
B) −28.3%
C) −5.0%
D) −16.0%
294) Attal Corporation manufactures numerous products, one of which is called Epsilon05.
The company has provided the following data about this product:
Unit sales (a) 90,000
Selling price per unit $ 72.00
Variable cost per unit 43.00
Contribution margin per unit (b) $ 29.00
Total contribution margin (a) × (b) $ 2,610,000
Traceable fixed expense 2,370,000
Net operating income $ 240,000
Assume that the total traceable fixed expense does not change. If Attal increases the price of
Epsilon05 to $75.60, what percentage change in unit sales would provide the same net operating
income as is currently being earned at a price of $72.00? (Your answer should be rounded to
the nearest 0.1%.)
A) −11.0%
B) −10.0%
C) −19.2%
D) −9.2%
295) Paluso Corporation manufactures numerous products, one of which is called Alpha42.
The company has provided the following data about this product:
Unit sales (a) 180,000
Selling price per unit $ 18.00
Variable cost per unit 14.00
Contribution margin per unit (b) $ 4.00
Total contribution margin (a)× (b) $ 720,000
Traceable fixed expense 640,000
Net operating income $ 80,000
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Management is considering increasing the price of Alpha42 by 4%, from $18.00 to $18.72. The
company’s marketing managers estimate that this price hike would decrease unit sales by 10%,
from 180,000 units to 162,000 units. Assuming that the total traceable fixed expense does not
change, what net operating income will product Alpha-42 earn at a price of $18.72 if this sales
forecast is correct?
A) $764,640
B) $209,600
C) $849,600
D) $124,640
296) Inscho Corporation manufactures numerous products, one of which is called Delta10.
The company has provided the following data about this product:
Unit sales (a) 140,000
Selling price per unit $ 85.00
Variable cost per unit 53.00
Contribution margin per unit (b) $ 32.00
Total contribution margin (a)× (b) $ 4,480,000
Traceable fixed expense 4,030,000
Net operating income $ 450,000
Assume that the total traceable fixed expense does not change. How many units of product
Delta10 would Inscho need to sell at a price of $90.95 to earn the same net operating income that
it currently earns at a price of $85.00? (Round your answer up to the nearest whole number.)
A) 125,938
B) 126,000
C) 118,051
D) 106,192
297) Contento Corporation manufactures numerous products, one of which is called Kappa15.
The company has provided the following data about this product:
Unit sales (a) 200,000
Selling price per unit $ 68.00
Variable cost per unit $ 44.00
Traceable fixed expense $ 4,540,000
What is the net operating income for product Kappa15 at the current price?
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A) $4,800,000
B) $13,600,000
C) $260,000
D) $9,060,000
298) Woodridge Corporation manufactures numerous products, one of which is called Alpha-
32. The company has provided the following data about this product:
Unit sales (a) 90,000
Selling price per unit $ 78.00
Variable cost per unit $ 63.00
Traceable fixed expense $ 1,366,000
Management is considering increasing the price of Alpha-32 by 8%, from $78.00 to $84.24. The
company’s marketing managers estimate that this price hike would decrease unit sales by 6%,
from 90,000 units to 84,600 units. Assuming that the total traceable fixed expense does not
change, what net operating income will product Alpha-32 earn at a price of $84.24 if this sales
forecast is correct?
A) $545,600
B) $1,911,600
C) $430,904
D) $1,796,904
299) Woodridge Corporation manufactures numerous products, one of which is called
Alpha32. The company has provided the following data about this product:
Unit sales (a) 90,000
Selling price per unit $ 99.00
Variable cost per unit $ 78.00
Traceable fixed expense $ 1,690,000
Management is considering increasing the price of Alpha32 by 4%, from $99.00 to $102.96. The
company’s marketing managers estimate that this price hike would decrease unit sales by 5%,
from 90,000 units to 85,500 units. Assuming that the total traceable fixed expense does not
change, what net operating income will product Alpha32 earn at a price of $102.96 if this sales
forecast is correct?
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A) $556,400
B) $2,246,400
C) $444,080
D) $2,134,080
300) Eastwood Corporation manufactures numerous products, one of which is called Beta-96.
The company has provided the following data about this product:
Unit sales (a) 72,000
Selling price per unit $ 60.00
Variable cost per unit $ 37.00
Traceable fixed expense $ 1,574,200
Management is considering decreasing the price of Beta-96 by 5%, from $60.00 to $57.00. The
company’s marketing managers estimate that this price reduction would increase unit sales by
8%, from 72,000 units to 77,760 units. Assuming that the total traceable fixed expense does not
change, what net operating income will product Beta-96 earn at a price of $57.00 if this sales
forecast is correct?
A) $1,555,200
B) $1,440,000
C) $(134,200)
D) $(19,000)
301) Eastwood Corporation manufactures numerous products, one of which is called Beta96.
The company has provided the following data about this product:
Unit sales (a) 60,000
Selling price per unit $ 88.00
Variable cost per unit $ 53.00
Traceable fixed expense $ 1,980,000
Management is considering decreasing the price of Beta96 by 8%, from $88.00 to $80.96. The
company’s marketing managers estimate that this price reduction would increase unit sales by
10%, from 60,000 units to 66,000 units. Assuming that the total traceable fixed expense does not
change, what net operating income will product Beta96 earn at a price of $80.96 if this sales
forecast is correct?
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A) $1,845,360
B) $1,677,600
C) ($302,400)
D) ($134,640)
302) Kopec Corporation manufactures numerous products, one of which is called Delta42. The
company has provided the following data about this product:
Unit sales (a) 170,000
Selling price per unit $ 55.00
Variable cost per unit $ 34.00
Traceable fixed expense $ 3,250,000
Assume that the total traceable fixed expense does not change. How many units of product
Delta42 would Kopec need to sell at a price of $60.50 to earn the same net operating income that
it currently earns at a price of $55.00? (Round your answer up to the nearest whole number.)
A) 122,642
B) 154,762
C) 134,717
D) 144,500
303) Hilfiger Industries Incorporated has developed a new forklift, model UH-40, that is
designed to offer superior performance to a comparable forklift sold by Hilfiger’s main
competitor. The competing forklift sells for $96,000 and needs to be replaced after 1,000 hours
of use. It also requires $9,000 of preventive maintenance during its useful life. Model UH-40’s
performance capabilities are similar to the competing product with two important exceptions—it
needs to be replaced only after 2,000 hours of use and it requires $13,000 of preventive
maintenance during its useful life.
From a value-based pricing standpoint what is model UH-40’s economic value to the customer
over its 2,000 hour life?
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A) $114,000
B) $197,000
C) $101,000
D) $192,000
304) Napp Heavy Machinery Corporation has developed a new drill press—model GJ-37—that
has been designed to outperform a competitor’s best-selling drill press. The competitor’s product
has a useful life of 30,000 hours of service, has operating costs that average $1.70 per hour, and
sells for $169,000. In contrast, model GJ-37 has a useful life of 120,000 hours of service and its
operating cost is $1.10 per hour. Napp has not yet established a selling price for model GJ-37.
From a value-based pricing standpoint what range of possible prices should Napp consider when
setting a price for GJ-37?
A) $579,000 ≤ Value-based price ≤ $748,000
B) $169,000 ≤ Value-based price ≤ $748,000
C) $301,000 ≤ Value-based price ≤ $579,000
D) $169,000 ≤ Value-based price ≤ $301,000
305) Montecalvo Logistic Solutions Corporation has developed a new forklift—model PI-28—
that has been designed to outperform a competitor’s best-selling forklift. The competitor’s
product has a useful life of 10,000 hours of service, has operating costs that average $9.70 per
hour, and sells for $139,000. In contrast, model PI-28 has a useful life of 20,000 hours of service
and its operating cost is $5.50 per hour. Montecalvo has not yet established a selling price for
model PI-28.
From a value-based pricing standpoint what is the differentiation value offered by PI-28
relative to the competitor’s offering for each 20,000 hours of service?
A) $223,000
B) $236,000
C) $84,000
D) $249,000
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306) Secore Robotics Corporation has developed a new robot—model TR-53—that has been
designed to outperform a competitor’s best-selling robot. The competitor’s product has a useful
life of 20,000 hours of service, has operating costs that average $1.30 per hour, and sells for
$109,000. In contrast, model TR-53 has a useful life of 100,000 hours of service and its
operating cost is $0.80 per hour. Secore has not yet established a selling price for model TR-53.
From a value-based pricing standpoint what is the reference value that Secore should consider
when pricing model TR-53?
A) $189,000
B) $135,000
C) $545,000
D) $109,000
307) Chasin Industries Incorporated has developed a new robot, model JB-32, that is designed
to offer superior performance to a comparable robot sold by Chasin’s main competitor. The
competing robot sells for $11,000 and needs to be replaced after 1,000 hours of use. It also
requires $1,000 of preventive maintenance during its useful life. Model JB-32’s performance
capabilities are similar to the competing product with two important exceptions—it needs to be
replaced only after 2,000 hours of use and it requires $1,000 of preventive maintenance during
its useful life.
From a value-based pricing standpoint what is the reference value that Chasin should consider
when pricing model JB-32?
A) $11,000
B) $12,000
C) $22,000
D) $13,000
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308) Ludy Mechanical Corporation has developed a new industrial grinder—model YS-48—
that has been designed to outperform a competitor’s best-selling industrial grinder. Model YS-48
has a useful life of 100,000 hours of service and its operating cost is $0.90 per hour. In contrast,
the competitor’s product has a useful life of 20,000 hours of service and has operating costs that
average $1.50 per hour. The competitor’s industrial grinder sells for $169,000. Ludy has not yet
established a selling price for model YS-48.
From a value-based pricing standpoint what is the differentiation value offered by YS-48
relative to the competitor’s offering for each 100,000 hours of service?
A) $736,000
B) $60,000
C) $199,000
D) $259,000
309) Rapson Pure Water Solutions Corporation has developed a new water purification
system—model EN-78—that has been designed to outperform a competitor’s best-selling water
purification system. Model EN-78 has a useful life of 120,000 hours of service and its operating
cost is $0.70 per hour. In contrast, the competitor’s product has a useful life of 40,000 hours of
service and has operating costs that average $1.20 per hour. The competitor’s water purification
system sells for $149,000. Rapson has not yet established a selling price for model EN-78.
From a value-based pricing standpoint what range of possible prices should Rapson consider
when setting a price for EN-78?
A) $233,000 ≤ Value-based price ≤ $358,000
B) $358,000 ≤ Value-based price ≤ $507,000
C) $149,000 ≤ Value-based price ≤ $507,000
D) $149,000 ≤ Value-based price ≤ $233,000
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310) Schimpf Industries Incorporated has developed a new grinder, model WC-13, that is
designed to offer superior performance to a comparable grinder sold by Schimpf’s main
competitor. The competing grinder sells for $96,000 and needs to be replaced after 26,100 hours
of use. It also requires $52,200 of preventive maintenance during its useful life. Model WC-13’s
performance capabilities are similar to the competing product with two important exceptions—it
needs to be replaced only after 104,400 hours of use and it requires $130,500 of preventive
maintenance during its useful life.
From a value-based pricing standpoint what range of possible prices should Schimpf consider
when setting a price for model WC-13?
A) $96,000 ≤ Value-based price ≤ $462,300
B) $366,300 ≤ Value-based price ≤ $384,000
C) $96,000 ≤ Value-based price ≤ $384,000
D) $366,300 ≤ Value-based price ≤ $462,300
311) Schimpf Industries Incorporated has developed a new grinder, model WC-13, that is
designed to offer superior performance to a comparable grinder sold by Schimpf’s main
competitor. The competing grinder sells for $24,000 and needs to be replaced after 1,000 hours
of use. It also requires $2,000 of preventive maintenance during its useful life. Model WC-13’s
performance capabilities are similar to the competing product with two important exceptions—it
needs to be replaced only after 4,000 hours of use and it requires $5,000 of preventive
maintenance during its useful life.
From a value-based pricing standpoint what range of possible prices should Schimpf consider
when setting a price for model WC-13?
A) $24,000 ≤ Value-based price ≤ $99,000
B) $75,000 ≤ Value-based price ≤ $96,000
C) $24,000 ≤ Value-based price ≤ $96,000
D) $75,000 ≤ Value-based price ≤ $99,000
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312) Olivier Industries Incorporated has developed a new instrument, model AG-06, that is
designed to offer superior performance to a comparable instrument sold by Olivier’s main
competitor. The competing instrument sells for $74,000 and needs to be replaced after 1,000
hours of use. It also requires $7,000 of preventive maintenance during its useful life. Model AG-
06’s performance capabilities are similar to the competing product with two important
exceptions—it needs to be replaced only after 4,000 hours of use and it requires $14,000 of
preventive maintenance during its useful life.
From a value-based pricing standpoint what is the differentiation value offered by model AG-
06 relative to the competitor’s offering for each 4,000 hours of usage?
A) $296,000
B) $102,000
C) $236,000
D) $14,000
313) Conaghan Avionics Corporation has developed a new high pressure pump—model RA–
79—that has been designed to outperform a competitor’s best-selling high pressure pump. The
competitor’s product has a useful life of 30,000 hours of service, has operating costs that average
$3.60 per hour, and sells for $159,000. In contrast, model RA-79 has a useful life of 60,000
hours of service and its operating cost is $2.00 per hour. Conaghan has not yet established a
selling price for model RA-79.
From a value-based pricing standpoint what is RA-79’s economic value to the customer over its
60,000 hour useful life?
A) $414,000
B) $267,000
C) $255,000
D) $279,000
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314) Hennig Plastics Equipment Corporation has developed a new injection mold—model XP-
30—that has been designed to outperform a competitor’s best-selling injection mold. Model XP-
30 has a useful life of 54,000 hours of service and its operating cost is $1.00 per hour. In
contrast, the competitor’s product has a useful life of 27,000 hours of service and has operating
costs that average $1.60 per hour. The competitor’s injection mold sells for $141,000. Hennig
has not yet established a selling price for model XP-30.
From a value-based pricing standpoint what is XP-30’s economic value to the customer over its
54,000 hour useful life?
A) $200,400
B) $184,200
C) $173,400
D) $314,400
315) Hennig Plastics Equipment Corporation has developed a new injection mold—model XP-
30—that has been designed to outperform a competitor’s best-selling injection mold. Model XP-
30 has a useful life of 60,000 hours of service and its operating cost is $1.20 per hour. In
contrast, the competitor’s product has a useful life of 30,000 hours of service and has operating
costs that average $2.10 per hour. The competitor’s injection mold sells for $149,000. Hennig
has not yet established a selling price for model XP-30.
From a value-based pricing standpoint what is XP-30’s economic value to the customer over its
60,000 hour useful life?
A) $221,000
B) $212,000
C) $203,000
D) $352,000
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316) Cables Electronics Corporation has developed a new instrument—model XG-75—that
has been designed to outperform a competitor’s best-selling instrument. Model XG-75 has a
useful life of 98,000 hours of service and its operating cost is $2.30 per hour. In contrast, the
competitor’s product has a useful life of 49,000 hours of service and has operating costs that
average $4.30 per hour. The competitor’s instrument sells for $145,000. Cables has not yet
established a selling price for model XG-75.
From a value-based pricing standpoint what is the reference value that Cables should consider
when pricing model XG-75?
A) $355,700
B) $341,000
C) $453,700
D) $145,000
317) Cables Electronics Corporation has developed a new instrument—model XG-75—that
has been designed to outperform a competitor’s best-selling instrument. Model XG-75 has a
useful life of 40,000 hours of service and its operating cost is $2.80 per hour. In contrast, the
competitor’s product has a useful life of 20,000 hours of service and has operating costs that
average $5.00 per hour. The competitor’s instrument sells for $169,000. Cables has not yet
established a selling price for model XG-75.
From a value-based pricing standpoint what is the reference value that Cables should consider
when pricing model XG-75?
A) $269,000
B) $281,000
C) $338,000
D) $169,000
318) A new product, an automated crepe maker, is being introduced at Knutt Corporation. At a
selling price of $32 per unit, management projects sales of 72,000 units. Launching the crepe
maker as a new product would require an investment of $200,000. The desired return on
investment is 14%. The target cost per crepe maker is closest to: (Round your answer to 2
decimal places.)
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A) $32.00
B) $39.80
C) $39.42
D) $31.61
319) A new product, an automated crepe maker, is being introduced at Knutt Corporation. At a
selling price of $59 per unit, management projects sales of 70,000 units. Launching the crepe
maker as a new product would require an investment of $500,000. The desired return on
investment is 12%. The target cost per crepe maker is closest to:
A) $59.00
B) $66.08
C) $58.14
D) $65.12
320) Home Products, Incorporated, is planning the introduction of a new food dryer. To
compete effectively, the dryer would have to be priced at no more than $40 per unit. An
investment of $600,000 would have to be made in order to produce and sell the new dryer. The
company requires a return on investment of at least 25% on new products. Assuming that the
company expects to produce and sell 30,000 dryers per year, the target cost per dryer would be
closest to:
A) $18.00
B) $35.00
C) $20.00
D) $24.67
321) Alway Candy Corporation is implementing a target costing approach for its latest new
product, the “Big Glob” candy bar. The following information relates to the Big Glob:
Target cost per candy bar $ 0.20
Expected annual sales (in units) of candy bars 40,000
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Required investment in additional assets $ 90,000
Desired return on investment 20%
Based on this information, what is Alway’s target selling price per bar for the Big Glob?
A) $0.65
B) $0.24
C) $3.78
D) $0.40
322) Alway Candy Corporation is implementing a target costing approach for its latest new
product, the “Big Glob” candy bar. The following information relates to the Big Glob:
Target cost per candy bar $ 0.60
Expected annual sales (in units) of candy bars 200,000
Required investment in additional assets $ 100,000
Desired return on investment 20%
Based on this information, what is Alway’s target selling price per bar for the Big Glob?
A) $0.70
B) $0.72
C) $0.75
D) $0.80
323) Timdat Corporation, a manufacturer of moderate-priced time pieces, would like to
introduce a new electronic watch. To compete effectively, the watch could not be priced at more
than $30. The company requires a return on investment of 25% on all new products. The plan is
to produce and sell 40,000 watches each year. This would require a $600,000 investment. The
target cost per watch would be:
A) $10.00
B) $20.00
C) $26.25
D) $45.00
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324) The management of Giammarino Corporation is considering introducing a new product—
a compact barbecue. At a selling price of $79 per unit, management projects sales of 10,000
units. Launching the barbecue as a new product would require an investment of $80,000. The
desired return on investment is 16%. The target cost per barbecue is closest to:
A) $91.64
B) $79.00
C) $77.72
D) $90.16
325) The management of Giammarino Corporation is considering introducing a new product—
a compact barbecue. At a selling price of $78 per unit, management projects sales of 10,000
units. Launching the barbecue as a new product would require an investment of $100,000. The
desired return on investment is 11%. The target cost per barbecue is closest to:
A) $86.58
B) $78.00
C) $76.90
D) $85.36
326) Hanisch Corporation would like to use target costing for a new product it is considering
introducing. At a selling price of $29 per unit, management projects sales of 40,000 units. The
new product would require an investment of $400,000. The desired return on investment is 16%.
The target cost per unit is closest to: (Do not round intermediate calculations.)
A) $36.25
B) $27.40
C) $2.90
D) $29.00
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327) Hanisch Corporation would like to use target costing for a new product it is considering
introducing. At a selling price of $22 per unit, management projects sales of 50,000 units. The
new product would require an investment of $400,000. The desired return on investment is 14%.
The target cost per unit is closest to:
A) $22.00
B) $23.80
C) $20.88
D) $25.08
328) Diedrich Corporation makes a product with the following costs:
Per Unit Per Year
Direct materials $ 18.80
Direct labor $ 12.10
Variable manufacturing overhead $ 4.60
Fixed manufacturing overhead $ 881,600
Variable selling and administrative expenses $ 1.00
Fixed selling and administrative expenses $ 860,000
The company uses the absorption costing approach to cost-plus pricing described in the text. The
pricing calculations are based on budgeted production and sales of 76,000 units per year.
The company has invested $460,000 in this product and expects a return on investment of 15%.
Direct labor is a variable cost in this company.
The markup on absorption cost is closest to: (Round your intermediate calculations to 2
decimal places and final answer to 1 decimal place.)
A) 74.8%
B) 15.0%
C) 26.1%
D) 28.1%
329) Diedrich Corporation makes a product with the following costs:
Per Unit Per Year
Direct materials $ 20.80
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Direct labor $ 15.20
Variable manufacturing overhead $ 1.30
Fixed manufacturing overhead $ 1,252,900
Variable selling and administrative expenses $ 4.20
Fixed selling and administrative expenses $ 1,581,200
The company uses the absorption costing approach to cost-plus pricing described in the text. The
pricing calculations are based on budgeted production and sales of 67,000 units per year.
The company has invested $420,000 in this product and expects a return on investment of 12%.
Direct labor is a variable cost in this company.
The markup on absorption cost is closest to:
A) 12.0%
B) 51.0%
C) 49.6%
D) 126.7%
330) Diedrich Corporation makes a product with the following costs:
Per Unit Per Year
Direct materials $ 20.80
Direct labor $ 15.20
Variable manufacturing overhead $ 1.30
Fixed manufacturing overhead $ 1,252,900
Variable selling and administrative expenses $ 4.20
Fixed selling and administrative expenses $ 1,581,200
The company uses the absorption costing approach to cost-plus pricing described in the text. The
pricing calculations are based on budgeted production and sales of 67,000 units per year.
The company has invested $420,000 in this product and expects a return on investment of 12%.
Direct labor is a variable cost in this company.
The selling price based on the absorption costing approach is closest to:
A) $83.80
B) $56.32
C) $84.56
D) $126.53
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331) Nance Corporation is about to introduce a new product. The following costs would be
incurred if 42,000 units are produced and sold each year:
Per Unit Total
Variable production costs $ 12 $ 504,000
Fixed production costs $ 6 $ 252,000
Variable selling and administrative costs $ 5 $ 210,000
Fixed selling and administrative costs $ 8 $ 336,000
Nance Corporation uses the absorption costing approach to cost-plus pricing as described in the
text.
Assume that the company has not yet determined a markup to use on the new product. The new
product would require an investment of $1,150,000. The company requires a 25% rate of return
on investment in all new products. The markup under the absorption costing approach would be
closest to:
A) 91.7%
B) 38.0%
C) 110.3%
D) 68.6%
332) Nance Corporation is about to introduce a new product. The following costs would be
incurred if 40,000 units are produced and sold each year:
Per Unit Total
Variable production costs $ 10 $ 400,000
Fixed production costs $ 5 $ 200,000
Variable selling and administrative costs $ 2 $ 80,000
Fixed selling and administrative costs $ 3 $ 120,000
Nance Corporation uses the absorption costing approach to cost-plus pricing as described in the
text.
Assume that the company has not yet determined a markup to use on the new product. The new
product would require an investment of $1,200,000. The company requires a 25% rate of return
on investment in all new products. The markup under the absorption costing approach would be
closest to:
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A) 70.0%
B) 50.0%
C) 83.3%
D) 63.3%
333) Nance Corporation is about to introduce a new product. The following costs would be
incurred if 40,000 units are produced and sold each year:
Per Unit Total
Variable production costs $ 10 $ 400,000
Fixed production costs $ 5 $ 200,000
Variable selling and administrative costs $ 2 $ 80,000
Fixed selling and administrative costs $ 3 $ 120,000
Nance Corporation uses the absorption costing approach to cost-plus pricing as described in the
text.
After introducing the product, the company finds that it has excess capacity. A foreign dealer
has offered to purchase 5,000 units of the product at a special price of $21 per unit. This sale
would not disturb regular business. If the special price is accepted on the 5,000 units, the effect
on total net income for the year should be:
A) $45,000 increase
B) $30,000 increase
C) $5,000 increase
D) $26,250 decrease
334) The management of Musselman Corporation would like to set the selling price on a new
product using the absorption costing approach to cost-plus pricing. The company’s accounting
department has supplied the following estimates for the new product:
Per Unit Per Year
Direct materials $ 27
Direct labor $ 16
Variable manufacturing overhead $ 8
Fixed annual manufacturing overhead $ 216,000
Variable selling and administrative expenses $ 3
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Fixed annual selling and administrative expenses $ 72,000
Management plans to produce and sell 9,000 units of the new product annually. The new product
would require an investment of $1,305,000 and has a required return on investment of 10%.
The absorption costing unit product cost is:
A) $51
B) $54
C) $75
D) $86
335) The management of Musselman Corporation would like to set the selling price on a new
product using the absorption costing approach to cost-plus pricing. The company’s accounting
department has supplied the following estimates for the new product:
Per Unit Per Year
Direct materials $ 27
Direct labor $ 16
Variable manufacturing overhead $ 8
Fixed annual manufacturing overhead $ 216,000
Variable selling and administrative expenses $ 3
Fixed annual selling and administrative expenses $ 72,000
Management plans to produce and sell 9,000 units of the new product annually. The new product
would require an investment of $1,305,000 and has a required return on investment of 10%.
The markup percentage on absorption cost is closest to:
A) 25%
B) 34%
C) 15%
D) 10%
336) The management of Musselman Corporation would like to set the selling price on a new
product using the absorption costing approach to cost-plus pricing. The company’s accounting
department has supplied the following estimates for the new product:
Per Unit Per Year
Direct materials $ 27
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Direct labor $ 16
Variable manufacturing overhead $ 8
Fixed annual manufacturing overhead $ 216,000
Variable selling and administrative expenses $ 3
Fixed annual selling and administrative expenses $ 72,000
Management plans to produce and sell 9,000 units of the new product annually. The new product
would require an investment of $1,305,000 and has a required return on investment of 10%.
The unit target selling price using the absorption costing approach is closest to:
A) $115.00
B) $86.50
C) $100.50
D) $83.33
337) Mercer Corporation estimates that an investment of $650,000 would be necessary to
produce and sell 60,000 units of a new product each year. Other costs associated with the new
product would be:
Variable costs (per unit):
Materials, labor, and overhead $ 12
Selling and administrative $ 3
Fixed costs per year:
Manufacturing overhead $ 360,000
Selling and administrative $ 300,000
The company requires a 25% return on the investment in all products. The company uses the
absorption costing approach costing to pricing as described in the text.
The markup percentage on the new product would be closest to:
A) 51.0%
B) 12.5%
C) 24.0%
D) 59.5%
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338) Mercer Corporation estimates that an investment of $650,000 would be necessary to
produce and sell 60,000 units of a new product each year. Other costs associated with the new
product would be:
Variable costs (per unit):
Materials, labor, and overhead $ 12
Selling and administrative $ 3
Fixed costs per year:
Manufacturing overhead $ 360,000
Selling and administrative $ 300,000
The company requires a 25% return on the investment in all products. The company uses the
absorption costing approach costing to pricing as described in the text.
The selling price would be closest to:
A) $28.71
B) $26.50
C) $22.00
D) $32.67
339) Ecob Corporation uses the absorption costing approach to cost-plus pricing as described
in the text to set prices for its products. Based on budgeted sales of 29,000 units next year, the
unit product cost of a particular product is $61.50. The company’s selling and administrative
expenses for this product are budgeted to be $384,000 in total for the year. The company has
invested $370,000 in this product and expects a return on investment of 12%.
The markup on absorption cost for this product would be closest to: (Do not round
intermediate calculations.)
A) 19.0%
B) 24.0%
C) 12.0%
D) 21.5%
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340) Ecob Corporation uses the absorption costing approach to cost-plus pricing as described
in the text to set prices for its products. Based on budgeted sales of 19,000 units next year, the
unit product cost of a particular product is $16.00. The company’s selling and administrative
expenses for this product are budgeted to be $250,800 in total for the year. The company has
invested $440,000 in this product and expects a return on investment of 14%.
The markup on absorption cost for this product would be closest to:
A) 96.5%
B) 102.8%
C) 14.0%
D) 82.5%
341) Ecob Corporation uses the absorption costing approach to cost-plus pricing as described
in the text to set prices for its products. Based on budgeted sales of 19,000 units next year, the
unit product cost of a particular product is $16.00. The company’s selling and administrative
expenses for this product are budgeted to be $250,800 in total for the year. The company has
invested $440,000 in this product and expects a return on investment of 14%.
The selling price based on the absorption costing approach for this product would be closest to:
A) $59.21
B) $29.20
C) $32.44
D) $18.24
342) Spach Corporation manufactures numerous products, one of which is called Beta68. The
company has provided the following data about this product:
Unit sales (a) 110,000
Selling price per unit $ 16.00
Variable cost per unit 10.00
Contribution margin per unit (b) $ 6.00
Total contribution margin (a) × (b) $ 660,000
Traceable fixed expense 580,000
Net operating income $ 80,000
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Management is considering decreasing the price of Beta68 by 5%, from $16.00 to $15.20. The
company’s marketing managers estimate that this price reduction would increase unit sales by
10%, from 110,000 units to 121,000 units. Assuming that the total traceable fixed expense does
not change, what net operating income will product Beta68 earn at a price of $15.20 if this sales
forecast is correct?
A) $629,200
B) $572,000
C) ($8,000)
D) $49,200
343) Spach Corporation manufactures numerous products, one of which is called Beta-68. The
company has provided the following data about this product:
Unit sales (a) 110,000
Selling price per unit $ 16.00
Variable cost per unit 10.00
Contribution margin per unit (b) $ 6.00
Total contribution margin (a) × (b) $ 660,000
Traceable fixed expense 580,000
Net operating income $ 80,000
Assume that the total traceable fixed expense does not change. How many units of product Beta-
68 would Spach need to sell at a price of $15.20 to earn the same net operating income that it
currently earns at a price of $16.00? (Round your answer up to the nearest whole number.)
A) 126,924
B) 111,538
C) 96,667
D) 121,000
344) Weitman Corporation manufactures numerous products, one of which is called
Epsilon50. The company has provided the following data about this product:
Unit sales (a) 130,000
Selling price per unit $ 29.00
Variable cost per unit $ 18.00
Traceable fixed expense $ 1,280,000
What is the net operating income for product Epsilon50 at the current price?
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A) $1,430,000
B) $150,000
C) $3,770,000
D) $2,490,000
345) Weitman Corporation manufactures numerous products, one of which is called Epsilon-
50. The company has provided the following data about this product:
Unit sales (a) 130,000
Selling price per unit $ 29.00
Variable cost per unit $ 18.00
Traceable fixed expense $ 1,280,000
Management is considering increasing the price of Epsilon-50 by 9%, from $29.00 to $31.61.
The company’s marketing managers estimate that this price hike would decrease unit sales by
15%, from 130,000 units to 110,500 units. Assuming that the total traceable fixed expense does
not change, what net operating income will product Epsilon 50 earn at a price of $31.61 if this
sales forecast is correct?
A) $223,905
B) $1,769,300
C) $489,300
D) $1,503,905
346) Weitman Corporation manufactures numerous products, one of which is called Epsilon-
50. The company has provided the following data about this product:
Unit sales (a) 130,000
Selling price per unit $ 29.00
Variable cost per unit $ 18.00
Traceable fixed expense $ 1,280,000
Assume that the total traceable fixed expense does not change. How many units of product
Epsilon-50 would Weitman need to sell at a price of $31.61 to earn the same net operating
income that it currently earns at a price of $29.00? (Round your answer up to the nearest
whole number.)
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A) 105,070
B) 116,364
C) 110,500
D) 94,048
347) Boggess Corporation manufactures numerous products, one of which is called Alpha41.
The company has provided the following data about this product:
Unit sales (a) 120,000
Selling price per unit $ 86.00
Variable cost per unit 57.00
Contribution margin per unit (b) $ 29.00
Total contribution margin (a) × (b) $ 3,480,000
Traceable fixed expense 3,150,000
Net operating income $ 330,000
Management is considering increasing the price of Alpha41 by 10%, from $86.00 to $94.60. The
company’s marketing managers estimate that this price hike would decrease unit sales by 20%,
from 120,000 units to 96,000 units. Assuming that the total traceable fixed expense does not
change, what net operating income will product Alpha41 earn at a price of $94.60 if this sales
forecast is correct?
A) $459,600
B) $4,512,000
C) $3,609,600
D) $1,362,00
348) Boggess Corporation manufactures numerous products, one of which is called Alpha-41.
The company has provided the following data about this product:
Unit sales (a) 120,000
Selling price per unit $ 86.00
Variable cost per unit 57.00
Contribution margin per unit (b) $ 29.00
Total contribution margin (a) × (b) $ 3,480,000
Traceable fixed expense 3,150,000
Net operating income $ 330,000
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Assume that the total traceable fixed expense does not change. How many units of product
Alpha-41 would Boggess need to sell at a price of $94.60 to earn the same net operating income
that it currently earns at a price of $86.00? (Round your answer up to the nearest whole
number.)
A) 96,000
B) 92,554
C) 83,777
D) 108,621
349) Twisdale Corporation manufactures numerous products, one of which is called
Omicron52. The company has provided the following data about this product:
Unit sales (a) 160,000
Selling price per unit $ 42.00
Variable cost per unit $ 27.00
Traceable fixed expense $ 2,070,000
What is the net operating income for product Omicron52 at the current price?
A) $6,720,000
B) $4,650,000
C) $330,000
D) $2,400,000
350) Twisdale Corporation manufactures numerous products, one of which is called Omicron-
52. The company has provided the following data about this product:
Unit sales (a) 160,000
Selling price per unit $ 42.00
Variable cost per unit $ 27.00
Traceable fixed expense $ 2,070,000
Management is considering decreasing the price of Omicron-52 by 4%, from $42.00 to $40.32.
The company’s marketing managers estimate that this price reduction would increase unit sales
by 5%, from 160,000 units to 168,000 units. Assuming that the total traceable fixed expense does
not change, what net operating income will product Omicron 52 earn at a price of $40.32 if this
sales forecast is correct?
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A) $2,131,200
B) $61,200
C) $167,760
D) $2,237,760
351) Twisdale Corporation manufactures numerous products, one of which is called Omicron-
52. The company has provided the following data about this product:
Unit sales (a) 160,000
Selling price per unit $ 42.00
Variable cost per unit $ 27.00
Traceable fixed expense $ 2,070,000
Assume that the total traceable fixed expense does not change. How many units of product
Omicron-52 would Twisdale need to sell at a price of $40.32 to earn the same net operating
income that it currently earns at a price of $42.00? (Round your answer up to the nearest
whole number.)
A) 138,000
B) 155,405
C) 180,181
D) 168,000
352) Kinsley Corporation manufactures numerous products, one of which is called Kappa03.
The company has provided the following data about this product:
Unit sales (a) 50,000
Selling price per unit $ 36.00
Variable cost per unit $ 26.00
Traceable fixed expense $ 470,000
What is the net operating income for product Kappa03 at the current price?
A) $500,000
B) $1,330,000
C) $1,800,000
D) $30,000
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353) Kinsley Corporation manufactures numerous products, one of which is called Kappa-03.
The company has provided the following data about this product:
Unit sales (a) 50,000
Selling price per unit $ 36.00
Variable cost per unit $ 26.00
Traceable fixed expense $ 470,000
Management is considering increasing the price of Kappa-03 by 7%, from $36.00 to $38.52. The
company’s marketing managers estimate that this price hike would decrease unit sales by 10%,
from 50,000 units to 45,000 units. Assuming that the total traceable fixed expense does not
change, what net operating income will product Kappa-03 earn at a price of $38.52 if this sales
forecast is correct?
A) $626,000
B) $563,400
C) $156,000
D) $93,400
354) Kinsley Corporation manufactures numerous products, one of which is called Kappa03.
The company has provided the following data about this product:
Unit sales (a) 50,000
Selling price per unit $ 36.00
Variable cost per unit $ 26.00
Traceable fixed expense $ 470,000
Assume that the total traceable fixed expense does not change. If Kinsley increases the price of
Kappa03 to $38.52, what percentage change in unit sales would provide the same net operating
income as is currently being earned at a price of $36.00? (Your answer should be rounded to
the nearest 0.1%.)
A) −6.0%
B) −24.9%
C) −10.0%
D) −20.1%
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355) Pascal Corporation manufactures numerous products, one of which is called Gamma66.
The company has provided the following data about this product:
Unit sales (a) 100,000
Selling price per unit $ 51.00
Variable cost per unit 34.00
Contribution margin per unit (b) $ 17.00
Total contribution margin (a) × (b) $ 1,700,000
Traceable fixed expense 1,570,000
Net operating income $ 130,000
Management is considering decreasing the price of Gamma66 by 4%, from $51.00 to $48.96.
The company’s marketing managers estimate that this price reduction would increase unit sales
by 10%, from 100,000 units to 110,000 units. Assuming that the total traceable fixed expense
does not change, what net operating income will product Gamma66 earn at a price of $48.96 if
this sales forecast is correct?
A) $(74,000)
B) $1,645,600
C) $75,600
D) $1,496,000
356) Pascal Corporation manufactures numerous products, one of which is called Gamma-66.
The company has provided the following data about this product:
Unit sales (a) 100,000
Selling price per unit $ 51.00
Variable cost per unit 34.00
Contribution margin per unit (b) $ 17.00
Total contribution margin (a) × (b) $ 1,700,000
Traceable fixed expense 1,570,000
Net operating income $ 130,000
Assume that the total traceable fixed expense does not change. If Pascal decreases the price of
Gamma-66 to $48.96, what percentage change in unit sales would provide the same net operating
income as is currently being earned at a price of $51.00? (Your answer should be rounded to
the nearest 0.1%.)
A) 4.9%
B) (10.0)%
C) 13.6%
D) (7.6)%
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357) Herrell Corporation manufactures numerous products, one of which is called Delta11.
The company has provided the following data about this product:
Unit sales (a) 110,000
Selling price per unit $ 29.00
Variable cost per unit 19.00
Contribution margin per unit (b) $ 10.00
Total contribution margin (a) × (b) $ 1,100,000
Traceable fixed expense 1,010,000
Net operating income $ 90,000
Management is considering increasing the price of Delta11 by 5%, from $29.00 to $30.45. The
company’s marketing managers estimate that this price hike would decrease unit sales by 10%,
from 110,000 units to 99,000 units. Assuming that the total traceable fixed expense does not
change, what net operating income will product Delta11 earn at a price of $30.45 if this sales
forecast is correct?
A) $1,133,550
B) $123,550
C) $249,500
D) $1,259,500
358) Herrell Corporation manufactures numerous products, one of which is called Delta-11.
The company has provided the following data about this product:
Unit sales (a) 110,000
Selling price per unit $ 29.00
Variable cost per unit 19.00
Contribution margin per unit (b) $ 10.00
Total contribution margin (a) × (b) $ 1,100,000
Traceable fixed expense 1,010,000
Net operating income $ 90,000
Assume that the total traceable fixed expense does not change. If Herrell increases the price of
Delta-11 to $30.45, what percentage change in unit sales would provide the same net operating
income as is currently being earned at a price of $29.00? (Your answer should be rounded to
the nearest 0.1%.)
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A) (10.0)%
B) (8.2)%
C) (12.7)%
D) (19.8)%
359) Chruch Corporation manufactures numerous products, one of which is called Tau42. The
company has provided the following data about this product:
Unit sales (a) 60,000
Selling price per unit $ 64.00
Variable cost per unit $ 44.00
Traceable fixed expense $ 1,120,000
What is the net operating income for product Tau42 at the current price?
A) $3,840,000
B) $2,720,000
C) $80,000
D) $1,200,000
360) Chruch Corporation manufactures numerous products, one of which is called Tau-42.
The company has provided the following data about this product:
Unit sales (a) 65,000
Selling price per unit $ 75.00
Variable cost per unit $ 59.00
Traceable fixed expense $ 1,180,000
Management is considering decreasing the price of Tau-42 by 10%, from $75.00 to $67.50. The
company’s marketing managers estimate that this price reduction would increase unit sales by
7%, from 65,000 units to 69,550 units. Assuming that the total traceable fixed expense does not
change, what net operating income (loss) will product Tau-42 earn at a price of $67.50 if this
sales forecast is correct?
A) $(588,825)
B) $552,500
C) $(38,675)
D) $591,175
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361) Chruch Corporation manufactures numerous products, one of which is called Tau-42.
The company has provided the following data about this product:
Unit sales (a) 60,000
Selling price per unit $ 64.00
Variable cost per unit $44.00
Traceable fixed expense $ 1,120,000
Management is considering decreasing the price of Tau-42 by 6%, from $64.00 to $60.16. The
company’s marketing managers estimate that this price reduction would increase unit sales by
10%, from 60,000 units to 66,000 units. Assuming that the total traceable fixed expense does not
change, what net operating income will product Tau-42 earn at a price of $60.16 if this sales
forecast is correct?
A) $(53,440)
B) $969,600
C) $(150,400)
D) $1,066,560
362) Chruch Corporation manufactures numerous products, one of which is called Tau-42.
The company has provided the following data about this product:
Unit sales (a) 64,000
Selling price per unit $ 90.00
Variable cost per unit $ 64.00
Traceable fixed expense $ 840,000
Assume that the total traceable fixed expense does not change. If Chruch decreases the price of
Tau-42 to $84.60, what percentage change in unit sales would provide the same net operating
income as is currently being earned at a price of $90? (Round your “Percentage” answers to 1
decimal place.)
A) 5.6%
B) 26.2%
C) -20.6%
D) -28.9%
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363) Chruch Corporation manufactures numerous products, one of which is called Tau-42.
The company has provided the following data about this product:
Unit sales (a) 60,000
Selling price per unit $ 64.00
Variable cost per unit $ 44.00
Traceable fixed expense $ 1,120,000
Assume that the total traceable fixed expense does not change. If Chruch decreases the price of
Tau-42 to $60.16, what percentage change in unit sales would provide the same net operating
income as is currently being earned at a price of $64.00? (Your answer should be rounded to
the nearest 0.1%.)
A) 15.5%
B) 23.8%
C) (6.7)%
D) (10.0)%
364) Blauvelt Electronics Corporation has developed a new instrument—model GZ-29—that
has been designed to outperform a competitor’s best-selling instrument. Model GZ-29 has a
useful life of 30,000 hours of service and its operating cost is $3.20 per hour. In contrast, the
competitor’s product has a useful life of 10,000 hours of service and has operating costs that
average $5.60 per hour. The competitor’s instrument sells for $149,000. Blauvelt has not yet
established a selling price for model GZ-29.
From a value-based pricing standpoint what is the reference value that Blauvelt should
consider when pricing model GZ-29?
A) $205,000
B) $149,000
C) $245,000
D) $447,000
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365) Blauvelt Electronics Corporation has developed a new instrument—model GZ-29—that
has been designed to outperform a competitor’s best-selling instrument. Model GZ-29 has a
useful life of 30,000 hours of service and its operating cost is $3.20 per hour.In contrast, the
competitor’s product has a useful life of 10,000 hours of service and has operating costs that
average $5.60 per hour. The competitor’s instrument sells for $149,000. Blauvelt has not yet
established a selling price for model GZ-29.
From a value-based pricing standpoint what is the differentiation value offered by GZ-29
relative to the competitor’s offering for each 30,000 hours of service?
A) $245,000
B) $205,000
C) $72,000
D) $370,000
366) Blauvelt Electronics Corporation has developed a new instrument—model GZ-29—that
has been designed to outperform a competitor’s best-selling instrument. Model GZ-29 has a
useful life of 30,000 hours of service and its operating cost is $3.20 per hour.In contrast, the
competitor’s product has a useful life of 10,000 hours of service and has operating costs that
average $5.60 per hour. The competitor’s instrument sells for $149,000. Blauvelt has not yet
established a selling price for model GZ-29.
From a value-based pricing standpoint what is GZ-29’s economic value to the customer over its
30,000 hour useful life?
A) $519,000
B) $370,000
C) $205,000
D) $245,000
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367) Blauvelt Electronics Corporation has developed a new instrument—model GZ-29—that
has been designed to outperform a competitor’s best-selling instrument. Model GZ-29 has a
useful life of 30,000 hours of service and its operating cost is $3.20 per hour.In contrast, the
competitor’s product has a useful life of 10,000 hours of service and has operating costs that
average $5.60 per hour. The competitor’s instrument sells for $149,000. Blauvelt has not yet
established a selling price for model GZ-29.
From a value-based pricing standpoint what range of possible prices should Blauvelt consider
when setting a price for GZ-29?
A) $245,000 ≤ Value-based price ≤ $370,000
B) $370,000 ≤ Value-based price ≤ $519,000
C) $149,000 ≤ Value-based price ≤ $519,000
D) $149,000 ≤ Value-based price ≤ $245,000
368) Wermers Industries Incorporated has developed a new drill press, model LS-88, that is
designed to offer superior performance to a comparable drill press sold by Wermers’s main
competitor. The competing drill press sells for $31,000 and needs to be replaced after 1,000
hours of use. It also requires $6,000 of preventive maintenance during its useful life. Model LS-
88’s performance capabilities are similar to the competing product with two important
exceptions—it needs to be replaced only after 2,000 hours of use and it requires $7,000 of
preventive maintenance during its useful life.
From a value-based pricing standpoint what is model LS-88’s economic value to the customer
over its 2,000 hour life?
A) $62,000
B) $36,000
C) $67,000
D) $43,000
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369) Wermers Industries Incorporated has developed a new drill press, model LS-88, that is
designed to offer superior performance to a comparable drill press sold by Wermers’s main
competitor. The competing drill press sells for $31,000 and needs to be replaced after 1,000
hours of use. It also requires $6,000 of preventive maintenance during its useful life. ModelLS-
88’s performance capabilities are similar to the competing product with two important
exceptions—it needs to be replaced only after 2,000 hours of use and it requires $7,000 of
preventive maintenance during its useful life.
From a value-based pricing standpoint what range of possible prices should Wermers consider
when setting a price for model LS-88?
A) $36,000 ≤ Value-based price ≤ $62,000
B) $31,000 ≤ Value-based price ≤ $62,000
C) $31,000 ≤ Value-based price ≤ $67,000
D) $36,000 ≤ Value-based price ≤ $67,000
370) Tavis Robotics Corporation has developed a new robot—model FI-73—that has been
designed to out perform a competitor’s best-selling robot. The competitor’s product has a useful
life of 10,000 hours of service, has operating costs that average $4.60 per hour, and sells for
$109,000. In contrast, model FI-73 has a useful life of 30,000 hours of service and its operating
cost is $2.60 per hour. Tavis has not yet established a selling price for model FI-73.
From a value-based pricing standpoint what is the reference value that Tavis should consider
when pricing model FI-73?
A) $155,000
B) $109,000
C) $187,000
D) $327,000
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371) Tavis Robotics Corporation has developed a new robot—model FI-73—that has been
designed to outperform a competitor’s best-selling robot. The competitor’s product has a useful
life of 10,000 hours of service, has operating costs that average $4.60 per hour, and sells for
$109,000. In contrast, model FI-73 has a useful life of 30,000 hours of service and its operating
cost is $2.60 per hour. Tavis has not yet established a selling price for model FI-73.
From a value-based pricing standpoint what is the differentiation value offered by FI-73
relative to the competitor’s offering for each 30,000 hours of service?
A) $60,000
B) $187,000
C) $278,000
D) $155,000
372) Tavis Robotics Corporation has developed a new robot—model FI-73—that has been
designed to outperform a competitor’s best-selling robot. The competitor’s product has a useful
life of 10,000 hours of service, has operating costs that average $4.85 per hour, and sells for
$114,000. In contrast, model FI-73 has a useful life of 30,000 hours of service and its operating
cost is $2.85 per hour. Tavis has not yet established a selling price for model FI-73.
From a value-based pricing standpoint what is FI-73’s economic value to the customer over its
30,000 hour useful life?
A) $165,000
B) $288,000
C) $402,000
D) $202,000
373) Tavis Robotics Corporation has developed a new robot—model FI-73—that has been
designed to out perform a competitor’s best-selling robot. The competitor’s product has a useful
life of 10,000 hours of service, has operating costs that average $4.60 per hour, and sells for
$109,000. In contrast, model FI-73 has a useful life of 30,000 hours of service and its operating
cost is $2.60 per hour. Tavis has not yet established a selling price for model FI-73.
From a value-based pricing standpoint what is FI-73’s economic value to the customer over its
30,000 hour useful life?
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A) $155,000
B) $278,000
C) $387,000
D) $187,000
374) Tavis Robotics Corporation has developed a new robot—model FI-73—that has been
designed to outperform a competitor’s best-selling robot. The competitor’s product has a useful
life of 10,000 hours of service, has operating costs that average $5.25 per hour, and sells for
$122,000. In contrast, model FI-73 has a useful life of 30,000 hours of service and its operating
cost is $3.25 per hour. Tavis has not yet established a selling price for model FI-73.
From a value-based pricing standpoint what range of possible prices should Tavis consider
when setting a price for FI-73?
A) $226,000 ≤ Value-based price ≤ $304,000
B) $122,000 ≤ Value-based price ≤ $226,000
C) $122,000 ≤ Value-based price ≤ $426,000
D) $304,000 ≤ Value-based price ≤ $426,000
375) Tavis Robotics Corporation has developed a new robot—model FI-73—that has been
designed to outperform a competitor’s best-selling robot. The competitor’s product has a useful
life of 10,000 hours of service, has operating costs that average $4.60 per hour, and sells for
$109,000. In contrast, model FI-73 has a useful life of 30,000 hours of service and its operating
cost is $2.60 per hour. Tavis has not yet established a selling price for model FI-73.
From a value-based pricing standpoint what range of possible prices should Tavis consider
when setting a price for FI-73?
A) $187,000 ≤ Value-based price ≤ $278,000
B) $109,000 ≤ Value-based price ≤ $187,000
C) $109,000 ≤ Value-based price ≤ $387,000
D) $278,000 ≤ Value-based price ≤ $387,000
Version 1 182
376) Morr Logistic Solutions Corporation has developed a new forklift—model QY-49—that
has been designed to out perform a competitor’s best-selling forklift. The competitor’s product
has a useful life of 10,000 hours of service, has operating costs that average $3.70 per hour, and
sells for $109,000. In contrast, model QY-49 has a useful life of 40,000 hours of service and its
operating cost is $2.10 per hour. Morr has not yet established a selling price for model QY-49.
From a value-based pricing standpoint what is QY-49’s economic value to the customer over
its 40,000 hour useful life?
A) $500,000
B) $193,000
C) $146,000
D) $391,000
377) Morr Logistic Solutions Corporation has developed a new forklift—model QY-49—that
has been designed to outperform a competitor’s best-selling forklift. The competitor’s product
has a useful life of 10,000 hours of service, has operating costs that average $3.70 per hour, and
sells for $109,000. In contrast, model QY-49 has a useful life of 40,000 hours of service and its
operating cost is $2.10 per hour. Morr has not yet established a selling price for model QY-49.
From a value-based pricing standpoint what range of possible prices should Morr consider
when setting a price for QY-49?
A) $193,000 ≤ Value-based price ≤ $391,000
B) $109,000 ≤ Value-based price ≤ $500,000
C) $391,000 ≤ Value-based price ≤ $500,000
D) $109,000 ≤ Value-based price ≤ $193,000
378) Shoun Mechanical Corporation has developed a new industrial grinder—model QJ-47—
that has been designed to outperform a competitor’s best-selling industrial grinder. Model QJ-47
has a useful life of 120,000 hours of service and its operating cost is $0.60 per hour. In contrast,
the competitor’s product has a useful life of 30,000 hours of service and has operating costs that
average $0.90 per hour. The competitor’s industrial grinder sells for $129,000. Shoun has not yet
established a selling price for model QJ-47.
From a value-based pricing standpoint what is QJ-47’s economic value to the customer over its
120,000 hour useful life?
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A) $423,000
B) $552,000
C) $156,000
D) $201,000
379) Shoun Mechanical Corporation has developed a new industrial grinder—model QJ-47—
that has been designed to outperform a competitor’s best-selling industrial grinder. Model QJ-47
has a useful life of 120,000 hours of service and its operating cost is $0.60 per hour. In contrast,
the competitor’s product has a useful life of 30,000 hours of service and has operating costs that
average $0.90 per hour. The competitor’s industrial grinder sells for $129,000. Shoun has not yet
established a selling price for model QJ-47.
From a value-based pricing standpoint what range of possible prices should Shoun consider
when setting a price for QJ-47?
A) $423,000 ≤ Value-based price ≤ $552,000
B) $129,000 ≤ Value-based price ≤ $201,000
C) $129,000 ≤ Value-based price ≤ $552,000
D) $201,000 ≤ Value-based price ≤ $423,000
380) Morice Industries Incorporated has developed a new injection mold, model IA-05, that is
designed to offer superior performance to a comparable injection mold sold by Morice’s main
competitor. The competing injection mold sells for $54,000 and needs to be replaced after 1,000
hours of use. It also requires $7,000 of preventive maintenance during its useful life. Model IA-
05’s performance capabilities are similar to the competing product with two important
exceptions—it needs to be replaced only after 2,000 hours of use and it requires $8,000 of
preventive maintenance during its useful life.
From a value-based pricing standpoint what is the reference value that Morice should consider
when pricing model IA-05?
A) $54,000
B) $68,000
C) $108,000
D) $61,000
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381) Morice Industries Incorporated has developed a new injection mold, model IA-05, that is
designed to offer superior performance to a comparable injection mold sold by Morice’s main
competitor. The competing injection mold sells for $54,000 and needs to be replaced after 1,000
hours of use. It also requires $7,000 of preventive maintenance during its useful life. Model IA-
05’s performance capabilities are similar to the competing product with two important
exceptions—it needs to be replaced only after 2,000 hours of use and it requires $8,000 of
preventive maintenance during its useful life.
From a value-based pricing standpoint what is the differentiation value offered by model IA-05
relative to the competitor’s offering for each 2,000 hours of usage?
A) $68,000
B) $60,000
C) $6,000
D) $108,000
382) Morice Industries Incorporated has developed a new injection mold, model IA-05, that is
designed to offer superior performance to a comparable injection mold sold by Morice’s main
competitor. The competing injection mold sells for $54,000 and needs to be replaced after 1,000
hours of use. It also requires $7,000 of preventive maintenance during its useful life. Model IA-
05’s performance capabilities are similar to the competing product with two important
exceptions—it needs to be replaced only after 2,000 hours of use and it requires $8,000 of
preventive maintenance during its useful life.
From a value-based pricing standpoint what is model IA-05’s economic value to the customer
over its 2,000 hour life?
A) $114,000
B) $68,000
C) $108,000
D) $60,000
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383) Morice Industries Incorporated has developed a new injection mold, model IA-05, that is
designed to offer superior performance to a comparable injection mold sold by Morice’s main
competitor. The competing injection mold sells for $54,000 and needs to be replaced after 1,000
hours of use. It also requires $7,000 of preventive maintenance during its useful life. Model IA-
05’s performance capabilities are similar to the competing product with two important
exceptions—it needs to be replaced only after 2,000 hours of use and it requires $8,000 of
preventive maintenance during its useful life.
From a value-based pricing standpoint what range of possible prices should Morice consider
when setting a price for model IA-05?
A) $54,000 ≤ Value-based price ≤ $114,000
B) $54,000 ≤ Value-based price ≤ $108,000
C) $60,000 ≤ Value-based price ≤ $114,000
D) $60,000 ≤ Value-based price ≤ $108,000
384) Wenner Corporation would like to use target costing for a new product it is considering
introducing. At a selling price of $44 per unit, management projects sales of 11,300 units. The
new product would require an investment of $913,000. The desired return on investment is 10%.
The desired profit according to the target costing calculations is:
A) $91,300
B) $405,900
C) $49,720
D) $497,200
385) Wenner Corporation would like to use target costing for a new product it is considering
introducing. At a selling price of $44 per unit, management projects sales of 10,000 units. The
new product would require an investment of $900,000. The desired return on investment is 10%.
The desired profit according to the target costing calculations is:
A) $90,000
B) $350,000
C) $44,000
D) $440,000
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386) Wenner Corporation would like to use target costing for a new product it is considering
introducing. At a selling price of $44 per unit, management projects sales of 10,000 units. The
new product would require an investment of $900,000. The desired return on investment is 10%.
The target cost per unit is closest to:
A) $44.00
B) $38.50
C) $48.40
D) $35.00
387) The management of Rademacher Corporation is considering introducing a new product—
a compact lawn blower. At a selling price of $26 per unit, management projects sales of 36,000
units. The lawn blower would require an investment of $1,000,000. The desired return on
investment is 14%.
The desired profit according to the target costing calculations is:
A) $796,000
B) $140,000
C) $936,000
D) $131,040
388) The management of Rademacher Corporation is considering introducing a new product—
a compact lawn blower. At a selling price of $24 per unit, management projects sales of 30,000
units. The lawn blower would require an investment of $200,000. The desired return on
investment is 12%.
The desired profit according to the target costing calculations is:
A) $696,000
B) $24,000
C) $86,400
D) $720,000
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389) The management of Rademacher Corporation is considering introducing a new product—
a compact lawn blower. At a selling price of $40 per unit, management projects sales of 32,400
units. The lawn blower would require an investment of $216,000. The desired return on
investment is 12%.
The target cost per lawn blower is closest to:
A) $40.00
B) $39.20
C) $28.64
D) $27.74
390) The management of Rademacher Corporation is considering introducing a new product—
a compact lawn blower. At a selling price of $24 per unit, management projects sales of 30,000
units. The lawn blower would require an investment of $200,000. The desired return on
investment is 12%.
The target cost per lawn blower is closest to:
A) $24.00
B) $23.20
C) $26.88
D) $25.98
391) The absorption costing approach to cost-plus pricing will result in attaining the
company’s required rate of return only if forecasted unit sales are realized.
⊚ true
⊚ false
392) Variable selling and administrative costs are excluded from the cost base used to set a
selling price under the absorption approach to cost-plus pricing described in the text.
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⊚ true
⊚ false
393) The markup over cost under the absorption costing approach would decrease if the unit
product cost increases, holding everything else constant.
⊚ true
⊚ false
394) In the absorption approach to cost-plus pricing, the anticipated markup in dollars is equal
to the anticipated profit.
⊚ true
⊚ false
395) The markup over cost under the absorption costing approach would decrease if the
required rate of return increases, holding everything else constant.
⊚ true
⊚ false
396) Under the absorption approach to cost-plus pricing described in the text, all fixed costs
are included in the cost base in setting a selling price.
⊚ true
⊚ false
397) If the formula for the markup percentage on absorption cost is used for setting prices,
then the company’s desired return on investment (ROI) will be attained regardless of how many
units are actually sold.
⊚ true
⊚ false
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398) All other things equal including costs, if customers are more sensitive to price for one
product than another, then to maximize profit the first product should have a higher price.
⊚ true
⊚ false
399) The sensitivity of unit sales to changes in price is called the price elasticity of demand.
⊚ true
⊚ false
400) Demand for a product is said to be elastic if a change in price has little effect on the
number of units sold.
⊚ true
⊚ false
401) Generally speaking, managers should set higher prices when demand is elastic and lower
prices when demand is inelastic.
⊚ true
⊚ false
402) In value-based pricing, the value of what differentiates a product from the best available
alternative is known as the differentiation value.
⊚ true
⊚ false
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403) Companies that use value-based pricing establish selling prices based on the economic
value of the benefits that their products and services provide to customers.
⊚ true
⊚ false
404) A product’s economic value to the customer is the variable cost of the product plus the
value of what differentiates the product from that alternative.
⊚ true
⊚ false
405) In value-based pricing, the economic value to the customer equals the reference value
less the differentiation value.
⊚ true
⊚ false
406) The target costing approach was developed in recognition of two important
characteristics of markets and costs. First, many companies have less control over price than they
like to think. Second, most of a product’s cost is determined when it is designed.
⊚ true
⊚ false
407) In target costing, the cost of a product is the starting point and the selling price follows
from the cost.
⊚ true
⊚ false
408) Target costing is primarily used with well-established products.
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⊚ true
⊚ false
409) Target costing involves adding a target profit per unit to actual unit cost to determine the
selling price.
⊚ true
⊚ false
410) Most of the opportunities to reduce the cost of a product come from outsourcing
production to where labor is relatively inexpensive.
⊚ true
⊚ false
411) “Cost-plus” pricing means that all costs—manufacturing, selling, and administrative—are
included in the cost base from which the target selling price is derived.
⊚ true
⊚ false
412) Quamma Corporation makes a product that has the following costs:
Per Unit Per Year
Direct materials $ 16.80
Direct labor $ 14.40
Variable manufacturing overhead $ 1.70
Fixed manufacturing overhead $ 700,800
Variable selling and administrative expenses $ 3.40
Fixed selling and administrative expenses $ 557,000
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The company uses the absorption costing approach to cost-plus pricing as described in the text.
The pricing calculations are based on budgeted production and sales of 32,000 units per year.
The company has invested $570,000 in this product and expects a return on investment of 14%.
Required:
a. Compute the markup on absorption cost. (Round your intermediate and final answer to 2
decimal places.)
b. Compute the selling price of the product using the absorption costing approach. (Round
your intermediate and final answer to 2 decimal places.)
413) Ritner Corporation manufactures a product that has the following costs:
Per Unit Per Year
Direct materials $ 22.50
Direct labor $ 14.00
Variable manufacturing overhead $ 2.40
Fixed manufacturing overhead $ 449,800
Variable selling and administrative expenses $ 1.80
Fixed selling and administrative expenses $ 591,900
The company uses the absorption costing approach to cost-plus pricing as described in the text.
The pricing calculations are based on budgeted production and sales of 29,300 units per year.
The company has invested $360,300 in this product and expects a return on investment of 9%.
Required:
a. Compute the markup on absorption cost. (Round your intermediate and final answer to 2
decimal places.)
b. Compute the selling price of the product using the absorption costing approach. (Round
your intermediate and final answer to 2 decimal places.)
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414) Gildersleeve Corporation manufactures a product that has the following costs:
Per Unit Per Year
Direct materials $ 6.00
Direct labor $ 5.00
Variable manufacturing overhead $ 4.00
Fixed manufacturing overhead $ 360,000
Variable selling and administrative expenses $ 5.00
Fixed selling and administrative expenses $ 120,000
The company uses the absorption costing approach to cost-plus pricing as described in the text.
The pricing calculations are based on budgeted production and sales of 30,000 units per year.
The company has invested $600,000 in this product and expects a return on investment of 15%.
Required:
a. Compute the markup on absorption cost.
b. Compute the selling price of the product using the absorption costing approach.
415) The management of Landstrom Corporation would like to set the selling price on a new
product using the absorption costing approach to cost-plus pricing. The company’s accounting
department has supplied the following estimates for the new product:
Per Unit Per Year
Direct materials $ 32
Direct labor $ 22
Variable manufacturing overhead $ 15
Fixed annual manufacturing overhead $ 88,000
Variable selling and administrative expenses $ 9
Fixed annual selling and administrative expenses $ 8,125
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Management plans to produce and sell 5,500 units of the new product annually. The new product
would require an investment of $570,000 and has a required return on investment of 35%.
Required:
a. Determine the unit product cost for the new product.
b. Determine the markup percentage on absorption cost for the new product.
c. Determine the selling price for the new product using the absorption costing approach.
(Round your intermediate and final answer to 2 decimal places.)
416) Powel Corporation manufactures numerous products, one of which is called Gamma54.
The company has provided the following data about this product:
Unit sales 180,000
Selling price per unit $ 16.00
Variable cost per unit $ 10.00
Traceable fixed expense $ 950,000
Required:
a. What net operating income is the company earning now on its sales of Gamma54?
b. Management is considering increasing the price of Gamma54 by 10%, from $16.00 to
$17.60. The company’s marketing managers estimate that this price hike would decrease unit
sales by 15%, from 180,000 units to 153,000 units. Assuming that the total traceable fixed
expense does not change, what net operating income will Gamma54 earn at a price of $17.60 if
this sales forecast is correct?
c. Assuming that the total traceable fixed expense does not change, if Powel increases the price
of Gamma54 to $17.60, what percentage change in unit sales would provide the same net
operating income that it currently earns at a price of $16.00? (Round your answer to the nearest
one-tenth of a percent.)
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417) Buzby Corporation manufactures numerous products, one of which is called Epsilon-39.
The company has provided the following data about this product:
Unit sales (a) 72,000
Selling price per unit $ 43.00
Variable cost per unit 25.00
Contribution margin per unit (b) $ 18.00
Total contribution margin (a) × (b) $ 1,296,000
Traceable fixed expense 1,010,000
Net operating income $ 286,000
Required:
a. Management is considering decreasing the price of Epsilon-39 by 5%, from $43.00 to
$40.85. The company’s marketing managers estimate that this price reduction would increase
unit sales by 10%, from 72,000 units to 79,200 units. Assuming that the total traceable fixed
expense does not change, what net operating income will Epsilon-39 earn at a price of $40.85 if
this sales forecast is correct?
b. Assuming that the total traceable fixed expense does not change, how many units of Epsilon-
39 would Buzby need to sell at a price of $40.85 to earn the same net operating income that it
currently earns at a price of $43.00? (Round your answer up to the nearest whole number.)
418) Saulsberry Corporation manufactures numerous products, one of which is called Beta70.
The company has provided the following data about this product:
Unit sales 90,000
Selling price per unit $ 60.00
Variable cost per unit $ 36.00
Traceable fixed expense $ 2,030,000
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Required:
a. What net operating income is the company earning now on its sales of Beta70?
b. Management is considering increasing the price of Beta70 by 10%, from $60.00 to $66.00.
The company’s marketing managers estimate that this price hike would decrease unit sales by
15%, from 90,000 units to 76,500 units. Assuming that the total traceable fixed expense does not
change, what net operating income will Beta70 earn at a price of $66.00 if this sales forecast is
correct?
c. Assuming that the total traceable fixed expense does not change, how many units of Beta70
would Saulsberry need to sell at a price of $66.00 to earn the same net operating income that it
currently earns at a price of $60.00? (Round your answer up to the nearest whole number.)
419) Algood Corporation manufactures numerous products, one of which is called Omicron09.
The company has provided the following data about this product:
Unit sales 100,000
Selling price per unit $ 19.00
Variable cost per unit $ 14.00
Traceable fixed expense $ 430,000
Required:
a. What net operating income is the company earning now on its sales of Omicron09?
b. Management is considering decreasing the price of Omicron09 by 5%, from $19.00 to
$18.05. The company’s marketing managers estimate that this price reduction would increase
unit sales by 15%, from 100,000 units to 115,000 units. Assuming that the total traceable fixed
expense does not change, what net operating income will Omicron09 earn at a price of $18.05 if
this sales forecast is correct?
c. Assuming that the total traceable fixed expense does not change, how many units of
Omicron09 would Algood need to sell at a price of $18.05 to earn the same net operating income
that it currently earns at a price of $19.00? (Round your answer up to the nearest whole
number.)
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420) Maccarone Corporation manufactures numerous products, one of which is called Tau10.
The company has provided the following data about this product:
Unit sales 130,000
Selling price per unit $ 36.00
Variable cost per unit $ 21.00
Traceable fixed expense $ 1,690,000
Required:
a. What net operating income is the company earning now on its sales of Tau10?
b. Management is considering decreasing the price of Tau10 by 5%, from $36.00 to $34.20.
The company’s marketing managers estimate that this price reduction would increase unit sales
by 10%, from 130,000 units to 143,000 units. Assuming that the total traceable fixed expense
does not change, what net operating income will Tau10 earn at a price of $34.20 if this sales
forecast is correct?
c. Assuming that the total traceable fixed expense does not change, if Maccarone decreases the
price of Tau10 to $34.20, what percentage change in unit sales would provide the same net
operating income that it currently earns at a price of $36.00? (Round your answer to the
nearest one-tenth of a percent.)
421) Ohanlon Corporation manufactures numerous products, one of which is called Delta-27.
The company has provided the following data about this product:
Unit sales (a) 182,000
Selling price per unit $ 62.00
Variable cost per unit 41.00
Contribution margin per unit (b) $ 21.00
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Total contribution margin (a) × (b) $ 3,822,000
Traceable fixed expense 3,370,000
Net operating income $ 452,000
Required:
a. Management is considering increasing the price of Delta-27 by 5%, from $62.00 to $65.10.
The company’s marketing managers estimate that this price hike would decrease unit sales by
10%, from 182,000 units to 163,800 units. Assuming that the total traceable fixed expense does
not change, what net operating income will Delta-27 earn at a price of $65.10 if this sales
forecast is correct?
b. Assuming that the total traceable fixed expense does not change, if Ohanlon increases the
price of Delta-27 to $65.10, what percentage change in unit sales would provide the same net
operating income that it currently earns at a price of $62.00? (Round your “Percentage”
answer to 1 decimal place.)
422) Yashinski Corporation manufactures numerous products, one of which is called Alpha46.
The company has provided the following data about this product:
Unit sales (a) 110,000
Selling price per unit $ 45.00
Variable cost per unit 33.00
Contribution margin per unit (b) $ 12.00
Total contribution margin (a) × (b) $ 1,320,000
Traceable fixed expense 1,240,000
Net operating income $ 80,000
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Required:
a. Management is considering increasing the price of Alpha46 by 15%, from $45.00 to $51.75.
The company’s marketing managers estimate that this price hike would decrease unit sales by
25%, from 110,000 units to 82,500 units. Assuming that the total traceable fixed expense does
not change, what net operating income will Alpha46 earn at a price of $51.75 if this sales
forecast is correct?
b. Assuming that the total traceable fixed expense does not change, how many units of Alpha46
would Yashinski need to sell at a price of $51.75 to earn the same net operating income that it
currently earns at a price of $45.00? (Round your answer up to the nearest whole number.)
423) Cabebe Corporation manufactures numerous products, one of which is called Omicron55.
The company has provided the following data about this product:
Unit sales (a) 140,000
Selling price per unit $ 54.00
Variable cost per unit 36.00
Contribution margin per unit (b) $ 18.00
Total contribution margin (a) × (b) $ 2,520,000
Traceable fixed expense 2,230,000
Net operating income $ 290,000
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Required:
a. Management is considering decreasing the price of Omicron55 by 4%, from $54.00 to $51.84.
The company’s marketing managers estimate that this price reduction would increase unit sales
by 10%, from 140,000 units to 154,000 units. Assuming that the total traceable fixed expense
does not change, what net operating income will Omicron55 earn at a price of $51.84 if this sales
forecast is correct?
b. Assuming that the total traceable fixed expense does not change, if Cabebe decreases the
price of Omicron55 to $51.84, what percentage change in unit sales would provide the same net
operating income that it currently earns at a price of $54.00? (Round your answer to the
nearest one-tenth of a percent.)
424) Wyler Logistic Solutions Corporation has developed a new forklift—model IM-40—that
has been designed to outperform a competitor’s best-selling forklift. The competitor’s product
has a useful life of 40,000 hours of service, has operating costs that average $1.30 per hour, and
sells for $139,000. In contrast, model IM-40 has a useful life of 120,000 hours of service and its
operating cost is $0.80 per hour. Wyler has not yet established a selling price for model IM-40.
Required:
From a value-based pricing standpoint what is the differentiation value offered by model IM-40
relative to the competitor’s offering for each 120,000 hours of service?
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425) Eytchison Industrial Products Incorporated has developed a new industrial grinder, model
OK-23, that is designed to offer superior performance to a comparable grinder sold by
Eytchison’s main competitor. The competing grinder sells for $34,000 and needs to be replaced
after 1,000 hours of use. It also requires $6,200 of preventive maintenance during its useful life.
Model OK-23’s performance capabilities are similar to the competing grinder with two important
exceptions—it needs to be replaced only after 3,000 hours of use and it requires $12,400 of
preventive maintenance during its useful life.
Required:
From a value-based pricing standpoint what is model OK-23’s economic value to the customer
over its 3,000 hour life?
426) Aboud Industrial Products Incorporated has developed a new industrial high pressure
pump, model ON-28, that is designed to offer superior performance to a comparable high
pressure pump sold by Aboud’s main competitor. The competing high pressure pump sells for
$87,000 and needs to be replaced after 1,000 hours of use. It also requires $15,000 of preventive
maintenance during its useful life. Model ON-28’s performance capabilities are similar to the
competing high pressure pump with two important exceptions—it needs to be replaced only after
3,000 hours of use and it requires $31,000 of preventive maintenance during its useful life.
Required:
From a value-based pricing standpoint what range of possible prices should Aboud consider
when setting a price for model ON-28?
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427) Kingsford Pure Water Solutions Corporation has developed a new water purification
system—model PC-97—that has been designed to outperform a competitor’s best-selling water
purification system. Model PC-97 has a useful life of 100,000 hours of service and its operating
cost is $0.70 per hour. In contrast, the competitor’s product has a useful life of 20,000 hours of
service and operating costs that average $1.00 per hour. The competitor’s water purification
system sells for $149,000. Kingsford has not yet established a selling price for model PC-97.
Required:
From a value-based pricing standpoint what range of possible prices should Kingsford consider
when setting a price for model PC-97?
428) Ralph Plastics Equipment Corporation has developed a new injection mold—model IX-
94—that has been designed to outperform a competitor’s best-selling injection mold. Model IX-
94 has a useful life of 50,000 hours of service and its operating cost is $2.00 per hour. In
contrast, the competitor’s product has a useful life of 10,000 hours of service and has operating
costs that average $3.50 per hour. The competitor’s injection mold sells for $129,000. Ralph has
not yet established a selling price for model IX-94.
Required:
From a value-based pricing standpoint what is model IX-94’s economic value to the customer
over its 50,000 hour useful life?
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429) Bochenski Mechanical Corporation has developed a new industrial grinder—model UF-
48—that has been designed to outperform a competitor’s best-selling industrial grinder. Model
UF-48 has a useful life of 80,000 hours of service and its operating cost is $1.25 per hour. In
contrast, the competitor’s product has a useful life of 20,000 hours of service and has operating
costs that average $2.05 per hour. The competitor’s industrial grinder sells for $134,000.
Bochenski has not yet established a selling price for model UF-48.
Required:
From a value-based pricing standpoint what is the differentiation value offered by model UF-48
relative to the competitor’s offering for each 80,000 hours of service?
430) Bellini Robotics Corporation has developed a new robot—model EM-28—that has been
designed to outperform a competitor’s best-selling robot. The competitor’s product has a useful
life of 30,000 hours of service, has operating costs that average $1.40 per hour, and sells for
$129,000. In contrast, model EM-28 has a useful life of 90,000 hours of service and its operating
cost is $0.80 per hour. Bellini has not yet established a selling price for model EM-28.
Required:
From a value-based pricing standpoint:
a. What is the reference value that Bellini should consider when pricing model EM-28?
b. What is the differentiation value offered by model EM-28 relative to the competitor’s offering
for each 90,000 hours of service?
c. What is model EM-28’s economic value to the customer over its 90,000 hour useful life?
d. What range of possible prices should Bellini consider when setting a price for model EM-28?
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431) Thoen Heavy Machinery Corporation has developed a new drill press—model OU-84—
that has been designed to outperform a competitor’s best-selling drill press. The competitor’s
product has a useful life of 30,000 hours of service, has operating costs that average $1.60 per
hour, and sells for $189,000. In contrast, model OU-84 has a useful life of 120,000 hours of
service and its operating cost is $1.00 per hour. Thoen has not yet established a selling price for
model OU-84.
Required:
From a value-based pricing standpoint what range of possible prices should Thoen consider
when setting a price for model OU-84?
432) Mounger Industrial Products Incorporated has developed a new industrial forklift, model
CZ-03, that is designed to offer superior performance to a comparable forklift sold by Mounger’s
main competitor. The competing forklift sells for $27,000 and needs to be replaced after 1,000
hours of use. It also requires $3,000 of preventive maintenance during its useful life. Model CZ-
03’s performance capabilities are similar to the competing forklift with two important
exceptions—it needs to be replaced only after 4,000 hours of use and it requires $6,000 of
preventive maintenance during its useful life.
Required:
From a value-based pricing standpoint what is the differentiation value offered by model CZ-03
relative to the competitor’s forklift for each 4,000 hours of usage?
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433) Trueba Electronics Corporation has developed a new testing instrument—model JJ-92—
that has been designed to outperform a competitor’s best-selling instrument. Model JJ-92 has a
useful life of 100,000 hours of service and its operating cost is $0.50 per hour. In contrast, the
competitor’s product has a useful life of 20,000 hours of service and has operating costs that
average $0.80 per hour. The competitor’s instrument sells for $109,000. Trueba has not yet
established a selling price for model JJ-92.
Required:
From a value-based pricing standpoint:
a. What is the reference value that Trueba should consider when pricing model JJ-92?
b. What is the differentiation value offered by model JJ-92 relative to the competitor’s offering
for each 100,000 hours of service?
c. What is model JJ-92’s economic value to the customer over its 100,000 hour useful life?
d. What range of possible prices should Trueba consider when setting a price for model JJ-92?
434) Weakly Industrial Products Incorporated has developed a new industrial instrument,
model CT-60, that is designed to offer superior performance to a comparable instrument sold by
Weakly’s main competitor. The competing instrument sells for $22,000 and needs to be replaced
after 1,000 hours of use. It also requires $4,000 of preventive maintenance during its useful life.
Model CT-60’s performance capabilities are similar to the competing instrument with two
important exceptions—it needs to be replaced only after 2,000 hours of use and it requires $6,000
of preventive maintenance during its useful life.
Required:
From a value-based pricing standpoint:
a. What is the reference value that Weakly should consider when pricing model CT-60?
b. What is the differentiation value offered by model CT-60 relative to the competitor’s
instrument for each 2,000 hours of usage?
c. What is model CT-60’s economic value to the customer over its 2,000 hour life?
d. What range of possible prices should Weakly consider when setting a price for model CT-60?
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435) Management of Thebeau, Incorporated, is considering a new product that would have a
selling price of $58 per unit and projected sales of 44,000 units. The new product would require
an investment of $850,000. The desired return on investment is 22%.
Required:
Determine the target cost per unit for the new product.
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Answer Key
Test name: chapter 13A
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