Chapter 8
99. Connolly Company produces two types of lamps, classic and fancy, with unit contribution margins of $13 and $21,
respectively. Each lamp must spend time on a special machine. The firm owns four machines that together provide 18,000
hours of machine time per year. The classic lamp requires 0.20 hours of machine time, the fancy lamp requires 0.50 hours
of machine time.
What is the contribution margin per hour of machine time for a classic lamp?
a. $26
b. $104
c. $16
d. $65
e. $13
Chapter 8
100. Connolly Company produces two types of lamps, classic and fancy, with unit contribution margins of $13 and $21,
respectively. Each lamp must spend time on a special machine. The firm owns four machines that together provide 18,000
hours of machine time per year. The classic lamp requires 0.20 hours of machine time, the fancy lamp requires 0.50 hours
of machine time.
What is the contribution margin per hour of machine time for a fancy lamp?
a. $21
b. $42
c. $13
d. $8
e. $6
101. Connolly Company produces two types of lamps, classic and fancy, with unit contribution margins of $13 and $21,
respectively. Each lamp must spend time on a special machine. The firm owns four machines that together provide 18,000
hours of machine time per year. The classic lamp requires 0.20 hours of machine time, the fancy lamp requires 0.50 hours
of machine time.
How many of each type of lamp must be sold to optimize total contribution margin?
a. 18,000 classic lamps; 0 fancy lamps
b. 0 classic lamps; 30,000 fancy lamps
c. 10,000 classic lamps; 10,000 fancy lamps
d. 0 classic lamps; 9,000 fancy lamps
e. 90,000 classic lamps; 0 fancy lamps
Chapter 8
102. Connolly Company produces two types of lamps, classic and fancy, with unit contribution margins of $13 and $21,
respectively. Each lamp must spend time on a special machine. The firm owns four machines that together provide 18,000
hours of machine time per year. The classic lamp requires 0.20 hours of machine time, the fancy lamp requires 0.50 hours
of machine time.
What is the total contribution margin of the optimal mix of classic and fancy lamps?
a. $1,280,000
b. $950,000
c. $1,000,000
d. $1,170,000
e. $90,000
Chapter 8
103. Myosot Company produces two models of a component, Model K-3 and Model P-4. The unit contribution margin for
Model K-3 is $12; the unit contribution margin for Model P-4 is $20. Each model must spend time on a special machine.
The firm owns two machines that provide 6,000 hours of machine time per year together. Model K-3 requires 24 minutes
of machine time; Model P-4 requires 36 minutes of machine time.
What is the amount of machine time for model K-3 in terms of percent of a machine hour?
a. 12%
b. 24%
c. 36%
d. 40%
e. 66%
104. Santorino Company produces two models of a component, Model K-3 and Model P-4. The unit contribution margin
for Model K-3 is $6; the unit contribution margin for Model P-4 is $14. Each model must spend time on a special
machine. The firm owns two machines that together provide 4,000 hours of machine time per year. Model K-3 requires 15
minutes of machine time; Model P-4 requires 30 minutes of machine time.
What is the contribution margin per unit of scarce resource (machine time) for Model K-3?
a. $24
b. $12
c. $6
d. $14
e. $28
Chapter 8
105. Santorino Company produces two models of a component, Model K-3 and Model P-4. The unit contribution margin
for Model K-3 is $6; the unit contribution margin for Model P-4 is $14. Each model must spend time on a special
machine. The firm owns two machines that together provide 4,000 hours of machine time per year. Model K-3 requires 15
minutes of machine time; Model P-4 requires 30 minutes of machine time.
What is the amount of machine time for model P-4 in terms of percent of a machine hour?
a. 10%
b. 20%
c. 25%
d. 30%
e. 50%
Chapter 8
106. Santorino Company produces two models of a component, Model K-3 and Model P-4. The unit contribution margin
for Model K-3 is $6; the unit contribution margin for Model P-4 is $14. Each model must spend time on a special
machine. The firm owns two machines that together provide 4,000 hours of machine time per year. Model K-3 requires 15
minutes of machine time; Model P-4 requires 30 minutes of machine time.
What is the contribution margin per unit of scarce resource (machine time) for Model P-4?
a. $6
b. $12
c. $24
d. $14
e. $28
107. Santorino Company produces two models of a component, Model K-3 and Model P-4. The unit contribution margin
for Model K-3 is $6; the unit contribution margin for Model P-4 is $14. Each model must spend time on a special
machine. The firm owns two machines that together provide 4,000 hours of machine time per year. Model K-3 requires 15
minutes of machine time; Model P-4 requires 30 minutes of machine time.
Now suppose that Santorino Company can sell only 5,500 units of each model. How many units of Model K-3 should be
produced?
a. 5,500
b. 312
c. 1,250
d. 2,750
Chapter 8
e. 5,000
108. Santorino Company produces two models of a component, Model K-3 and Model P-4. The unit contribution margin
for Model K-3 is $6; the unit contribution margin for Model P-4 is $14. Each model must spend time on a special
machine. The firm owns two machines that together provide 4,000 hours of machine time per year. Model K-3 requires 15
minutes of machine time; Model P-4 requires 30 minutes of machine time.
Now suppose that Santorino Company can sell only 5,500 units of each model. How many units of Model P-4 should be
produced?
a. 5,500
b. 5,000
c. 1,250
d. 2,750
e. 1,375
Chapter 8
109. Sabor Inc. is a medical testing laboratory that performs several tests and analyses for hospitals in the area. Four of the
tests that they perform require the use of a specialized machine that can supply 14,000 hours per year. Information on the
four lab tests follows:
Test A Test B Test C Test D
Charging rate $65 $51 $48 $32
Variable cost $25 $18 $13 $8
Machine hours 3 2 1 0.5
What is the contribution margin per hour of machine time for Test A?
a. $40
b. $65
c. $25.50
d. $13.33
e. $15.67
Chapter 8
110. Sabor Inc. is a medical testing laboratory that performs several tests and analyses for hospitals in the area. Four of the
tests that they perform require the use of a specialized machine that can supply 14,000 hours per year. Information on the
four lab tests follows:
Test A Test B Test C Test D
Charging rate $65 $51 $48 $32
Variable cost $25 $18 $13 $8
Machine hours 3 2 1 0.5
What is the contribution margin per hour of machine time for Test B?
a. $20.50
b. $33
c. $16.25
d. $16.50
e. $18
111. Sabor Inc. is a medical testing laboratory that performs several tests and analyses for hospitals in the area. Four of the
tests that they perform require the use of a specialized machine that can supply 14,000 hours per year. Information on the
four lab tests follows:
Test A Test B Test C Test D
Charging rate $65 $51 $48 $32
Variable cost $25 $18 $13 $8
Machine hours 3 2 1 0.5
What is the contribution margin per hour of machine time for Test C?
Chapter 8
a. $48
b. $35
c. $13
d. $16
e. $24
112. Sabor Inc. is a medical testing laboratory that performs several tests and analyses for hospitals in the area. Four of the
tests that they perform require the use of a specialized machine that can supply 14,000 hours per year. Information on the
four lab tests follows:
Test A Test B Test C Test D
Charging rate $65 $51 $48 $32
Variable cost $25 $18 $13 $8
Machine hours 3 2 1 0.5
What is the contribution margin per unit of machine time for Test D?
a. $20
b. $32
c. $8
d. $48
e. $24
Chapter 8
113. Raffles Company routinely bids on construction jobs. Raffles first determines the budgeted product cost of the job
and then applies a markup of 50%. If a bid of $15,000 is submitted for a new job, which of the following is true?
a. Budgeted product cost is $15,000.
b. $5,000 is pure profit.
c. All costs pertaining to the job total $15,000.
d. $5,000 includes fixed overhead, selling and administrative expense, and profit.
e. $5,000 includes selling and administrative expense, and profit.
114. Which of the following works backward from the desired price to find the allowable cost?
a. Step costing
b. Differential costing
c. Target costing
d. Mixed costing
e. Overall costing
Chapter 8
115. Gerberal Company charges cost plus 40%. What is the price of an item with cost equal to $100?
a. $76
b. $85
c. $140
d. $125
e. $190
116. Stadium Company charges cost plus 60%. If the price of an item is $260, what is the item’s cost?
a. $180
b. $162.50
c. $100
d. $125.50
e. $150.75
Chapter 8
117. Mattson Construction charges each customer a price equal to the cost of direct materials, direct labor, and overhead
plus 40%. Job #1845 included the following costs:
Direct materials $39,000
Direct labor $67,000
Overhead $26,000
What is price charged for Job 1845?
a. $86,000
b. $42,400
c. $106,000
d. $184,800
e. $166,154
118. Gladiol sets prices at cost plus 65%. The cost of an aquarium start-up kit is $100. What price does Gladiol Supplies
charge for the aquarium start-up kit?
Chapter 8
a. $680
b. $554
c. $165
d. $780
e. $220
119. Rhine Company sets price equal to cost plus 40%. Recently, Rhine charged a customer a price of $280 for an item.
What was the cost of the item to Rhine?
a. $120
b. $185
c. $200
d. $340
e. $580
Chapter 8
120. Wilson Custom Cabinetry makes cabinets to order and prices the completed jobs at product cost plus 40%. Recently,
Wilson finished a job and billed the customer $560. If direct materials for the job cost $130, and direct labor cost $180,
what was the applied overhead for the job?
a. $250
b. $179
c. $350
d. $400
e. $90
121. Hyacinth Company is designing an all-in-one grill and cooler aimed at sports fans. The company believes that the
product can be sold for $250. Hyacinth requires a 20% profit on new products. What is the target cost of the all-in–one
grill and cooler?
a. $122
b. $251
c. $145
d. $200
e. $180
Chapter 8
122. Shear-it, Inc., produces paper shredders. Shear-it is considering a new shredder design for home offices. The
marketing vice president believes that a basic unit in a variety of attractive colors could be sold for $70. Shear-it requires
that all new products yield 30% profit. What is the target cost of the new shredder?
a. $21
b. $91
c. $49
d. $100
e. $63.70
123. Brorsen, Inc., has just designed a new product with a target cost of $64. Brorsen requires new product to have a profit
of 20%. What is the target price for the new product?
a. $64
b. $12.80
c. $320
d. $80
e. $53
Chapter 8
124. Irisen Company has designed a caller ID machine with a large screen that can be seen easily from across the room.
The sales department believes that this product can be sold for $40 each. Irisen requires that all new products yield 10%
profit. What is the target cost of the new product?
a. $41
b. $28
c. $14
d. $36
e. $25
Chapter 8
125. Mekong Company was making a product for $45 and selling it for $90. A competitor began selling the same product
for $75. If Mekong is to meet the competition’s price, and maintain the same amount of profit per unit, what is its target
cost?
a. $30
b. $45
c. $21
d. $33
e. $52
126. Victor’s Detailing customers would be willing to pay $57 per detail. The company requires an 80% markup on each
job. The average job would cost $30.
Victor’s Detailing uses markup pricing to set the price on each job. What is the price Victor should quote a new customer?
a. $30
b. $24
c. $54
d. $84
e. $240
Chapter 8
127. Victor’s Detailing customers would be willing to pay $57 per detail. The company requires a 40% profit on each job.
The average job would cost $30.
Victor’s Detailing uses target-costing. What is the price they should quote a new customer?
a. $30
b. $24
c. $57
d. $54
e. $84
128. Victor’s Detailing customers would be willing to pay $57 per detail. The company requires a 40% profit on each job.
The average job would cost $30.
Victor’s uses target costing. Victor’s Detailing should:
a. sell their business.
b. ask their customers to pay more.
c. sell their services at the price customers are willing to pay.
d. find a way to reduce costs.
e. reduce their required percentage to stay in business.
Chapter 8
Completion
129. ____________________ consists of choosing among alternatives with an immediate or limited end in view.
130. A _________________ can be used to structure the decision maker’s thinking and to organize the information to
make a good decision.