66) Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $3 per unit. Bluebird
currently produces and sells 75,000 units at $7.00 each. This level represents 80% of its capacity.
These bird feeders would be marketed under the wholesaler’s name and would not affect Bluebird’s
sales through its normal channels. Production costs for these units are $3.50 per unit, which
includes $2.25 variable cost and $1.25 fixed cost. If Bluebird accepts this additional business, the
incremental cost will be:
A) $38,750. B) $7,500. C) $33,750. D) $11,250. E) $45,000.
67) Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $3 per unit. Bluebird
currently produces and sells 75,000 units at $7.00 each. This level represents 80% of its capacity.
These bird feeders would be marketed under the wholesaler’s name and would not affect Bluebird’s
sales through its normal channels. Production costs for these units are $3.50 per unit, which
includes $2.25 variable cost and $1.25 fixed cost. If Bluebird accepts this additional business, the
effect on net income will be:
A) $45,000 increase.
B) $7,500 decrease.
C) $11,250 increase.
D) $33,750 increase.
E) $33,750 decrease.
68) Bannister Co. is thinking about having one of its products manufactured by an outside supplier.
Currently, the cost of manufacturing 1,000 units follows:
Direct material $ 45,000
Direct labor 30,000
Factory overhead (30% is variable) 98,000
If Bannister can buy 1,000 units from an outside supplier for $100,000, it should:
A) Buy the product because the total incremental costs of manufacturing are greater than
$100,000.
B) Buy the product because total fixed and variable manufacturing costs are greater than
$100,000.
C) Make the product because current factory overhead is less than $100,000.
D) Make the product because the cost of direct material plus direct labor of manufacturing is less
than $100,000.
E) Make the product because factory overhead is a sunk cost.
69) Frederick Co. is thinking about having one of its products manufactured by an outside supplier.
Currently, the cost of manufacturing 5,000 units follows:
Direct material
$ 62,000
Direct labor
47,000
Variable factory overhead
38,000
Fixed factory overhead
52,000
If Frederick can buy 5,000 units from an outside supplier for $130,000, it should:
A) Buy the product because the total incremental costs of manufacturing are greater than
$130,000.
B) Make the product because factory overhead is a sunk cost.
C) Make the product because the cost of direct material plus direct labor of manufacturing is less
than $130,000.
D) Make the product because current factory overhead is less than $130,000.
E) Buy the product because total fixed and variable manufacturing costs are greater than
$130,000.
70) A company has the choice of either selling 1,000 defective units as scrap or rebuilding them. The
company could sell the defective units as they are for $4.00 per unit. Alternatively, it could rebuild
them with incremental costs of $1.00 per unit for materials, $2.00 per unit for labor, and $1.50 per
unit for overhead, and then sell the rebuilt units for $8.00 each. What should the company do?
A) Neither sell nor rebuild because both alternatives produce a loss. Instead, the company should
store the units permanently.
B) Scrap the units.
C) Sell the units as scrap.
D) Rebuild the units.
E) It does not matter because both alternatives have the same result.
71) A company has the choice of either selling 1,000 defective units as scrap or rebuilding them. The
company could sell the defective units as they are for $4.00 per unit. Alternatively, it could rebuild
them with incremental costs of $1.00 per unit for materials, $2.00 per unit for labor, and $1.50 per
unit for overhead, and then sell the rebuilt units for $8.00 each. If the company rebuilds the units,
rather than selling them as scrap, what is the incremental impact on income?
A) Income will increase by $8,000.
B) Income will decrease by $500.
C) Income will decrease by $4,500.
D) Income will increase by $4,000.
E) Income will increase by $500.
72) A company has the choice of either selling 600 defective units as scrap or rebuilding them. The
company could sell the defective units as they are for $2.00 per unit. Alternatively, it could rebuild
them with incremental costs of $0.60 per unit for materials, $1.00 per unit for labor, and $0.80 per
unit for overhead, and then sell the rebuilt units for $5.00 each. What is the amount of incremental
revenue from rebuilding?
A) $0.60 per unit.
B) $7.00 per unit.
C) $2.40 per unit.
D) $5.00 per unit.
E) $3.00 per unit.
50
73) A company has the choice of either selling 600 defective units as scrap or rebuilding them. The
company could sell the defective units as they are for $2.00 per unit. Alternatively, it could rebuild
them with incremental costs of $0.60 per unit for materials, $1.00 per unit for labor, and $0.80 per
unit for overhead, and then sell the rebuilt units for $5.00 each. What is the amount of incremental
cost from rebuilding?
A) $0.60 per unit.
B) $7.00 per unit.
C) $2.40 per unit.
D) $5.00 per unit.
E) $3.00 per unit.
74) A company has the choice of either selling 600 defective units as scrap or rebuilding them. The
company could sell the defective units as they are for $2.00 per unit. Alternatively, it could rebuild
them with incremental costs of $0.60 per unit for materials, $1.00 per unit for labor, and $0.80 per
unit for overhead, and then sell the rebuilt units for $5.00 each. What is the amount of incremental
income (loss) from rebuilding?
A) $(3.00) per unit.
B) $3.00 per unit.
C) $(0.60) per unit.
D) $0.60 per unit.
E) $7.00 per unit.
75) A company has the choice of either selling 600 defective units as scrap or rebuilding them. The
company could sell the defective units as they are for $2.00 per unit. Alternatively, it could rebuild
them with incremental costs of $0.60 per unit for materials, $1.00 per unit for labor, and $0.80 per
unit for overhead, and then sell the rebuilt units for $5.00 each. What should the company do?
A) It does not matter because both alternatives have the same result.
B) Rebuild the units.
C) Sell the units as scrap.
D) Since both alternatives produce a loss, store the units in hopes of a better price later.
E) Scrap the units.
76) Ahngram Corp. has 1,000 defective units of a product that cost $3 per unit in direct costs and $6.50
per unit in indirect cost when produced last year. The units can be sold as scrap for $4 per unit or
reworked at an additional cost of $2.50 and sold at full price of $12. The incremental net income
(loss) from the choice of reworking the units, versus selling them as scrap, would be:
A) $2,500 higher if the units are reworked.
B) $5,500 higher if the units are reworked.
C) $4,000 higher if the units are reworked.
D) $2,500 lower if the units are reworked.
E) $12,000 higher if the units are reworked.
57
77) Benjamin Company had the following results of operations for the past year:
$ 160,000
$ 96,00
0
16,00
0
32,00 (144,000
0
)
$ 16,000
A foreign company (whose sales will not affect Benjamin’s market) offers to buy 4,000 units at $7.50
per unit. In addition to variable manufacturing costs, selling these units would increase fixed
overhead by $600 and selling and administrative costs by $300. Assuming Benjamin has excess
capacity and accepts the offer, its profits will:
A) Increase by $4,300.
B) Increase by $6,000.
C) Decrease by $6,000.
D) Increase by $30,000.
E) Increase by $5,200.
60
78) Benjamin Company had the following results of operations for the past year:
Sales (16,000 units at $10) $ 160,000
Direct materials and direct labor $ 96,00
0
Overhead (20% variable) 16,00
0
Selling and administrative expenses (all fixed) 32,00
0
(144,000 )
Operating income $ 16,000
A foreign company (whose sales will not affect Benjamin’s market) offers to buy 4,000 units at $7.50
per unit. In addition to variable manufacturing costs, selling these units would increase fixed
overhead by $600 and selling and administrative costs by $300. Assuming Benjamin’s productive
capacity is 16,000 units per year and accepts the offer, its profits will:
A) Decrease by $10,000.