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33.
34.
4-23
35.
Lafferty Corporation is a specialty component manufacturer with idle capacity.
Management would like to use its unused capacity to generate additional profits. A
potential customer has offered to buy 6,200 units of component Rocket. Each unit of
Rocket requires 8 units of material CES4 and 6 units of material XES7. Data concerning
these two materials follow:
Material
Units
in
Stock
Original
Cost Per
Unit
Current
Market
Price Per
Unit
Disposal
Value Per
Unit
CES4
32,420
$3.80
$3.35
$3.10
XES7
31,060
$9.30
$9.60
$8.35
36.
Alpha Inc. regularly uses material FLAV4 and currently has in stock 460 liters of the
material for which it paid $2,622 several weeks ago. If this were to be sold as is on the
open market as surplus material, it would fetch $5.25 per liter. New stocks of the material
can be purchased on the open market for $5.85 per liter, but it must be purchased in lots
of 1,000 liters. You have been asked to determine the relevant cost of 800 liters of the
material to be used in a job for a customer. The relevant cost of the 800 liters of material
FLAV4 is: (CIMA adapted)
4-25
37.
Starla 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 4,200 units of component JOLT. Each unit of JOLT requires 6 units of
material OX8 and 9 units of material POW6. Data concerning these two materials follow:
Material
Units
in
Stock
Original
Cost Per
Unit
Current
Market
Price Per
Unit
Disposal
Value Per
Unit
OX8
18,600
$3.60
$3.70
$3.35
POW6
38,280
$3.20
$2.80
$1.65
38.
39.
Which of the following costs are not considered in a differential analysis for a make-or-
buy decision?
40.
The Crispy Baking Company is considering the expansion of its business into door-to-door
delivery service. This would require an additional $12,500 in labor costs per month.
Company-owned vehicles now used to make morning deliveries to restaurants could be
used in the afternoons to make the home deliveries. However, it is estimated that an
additional $5,000 would be required per month for gas, oil, and maintenance. It is further
estimated that the home delivery use of the trucks would be allocated 45% of the existing
$6,500 fixed vehicle costs. What is the differential delivery cost per month for expanding
into the home delivery market?
41.
The time from initial research and development to the time that support to the customer
ends is the:
42.
The price based on customers' perceived value for the product and the price that
competitors charge:
43.
44.
The practice of setting prices highest when the quantity demanded for the product
approaches capacity:
45.
Agreement among business competitors to set prices at a particular level:
46.
Exporting a product to another country at a price below domestic cost:
47.
A target cost is computed as:
48.
The operations of Bridgeton Corporation are divided into the Adams Division and the
Carter Division. Projections for the next year are as follows:
Adams
Division
Carter
Division
Total
Sales
$560,000
$336,000
$896,000
Variable costs
196,000
154,000
350,000
Contribution
margin
$364,000
$182,000
$546,000
Direct fixed costs
168,000
140,000
308,000
Segment margin
$196,000
$42,000
$238,000
Allocated common
costs
84,000
63,000
147,000
Operating income
(loss)
$112,000
($21,000)
$91,000
Operating income for Bridgeton Corporation as a whole if the Carter Division were
dropped would be:
Topic: Use of Differential Analysis for Production Decisions
49.
Damon Industries manufactures 20,000 components per year. The manufacturing cost of
the components was determined as follows:
Direct materials
$100,000
Direct labor
160,000
Variable manufacturing overhead
60,000
Fixed manufacturing overhead
80,000
50.
Brevard Industries produces two products. Information about the products is as follows:
Product 1
Product 2
Units produced and sold
$4,000
10,000
Selling price per unit
$15
$13
Variable costs per unit
9
8
51.
Which of the following costs would continue to be incurred even if a segment is
eliminated?
52.
53.
Carter Industries has two divisions: the West Division and the East Division. Information
relating to the divisions for the year just ended is as follows:
West
East
Units produced and sold
30,000
40,000
Selling price per unit
$8
$15
Variable costs per unit
3
5
Direct fixed cost
48,000
110,000
Common fixed cost
40,000
40,000
Common fixed expenses have been allocated equally to each of the two divisions. Carter's
segment margin for the West Division is:
54.
Ortega Industries manufactures 15,000 components per year. The manufacturing cost of
the components was determined to be as follows:
Direct materials
$150,000
Direct labor
240,000
Variable manufacturing overhead
90,000
Fixed manufacturing overhead
120,000
Total
$600,000
