Garcia Company produces a part that is used in the manufacture of one of its products.The costs associated with the production of 5,000 units of this part are as follows: $\begin{array}{lr} \text { Direct materials } & \$ 108,000 \\ \text { Direct labor } & 156,000 \\ \text { Variable factory overhead } & 72,000 \\ \text { Fixed factory overhead } & 168,000 \\ \text { Total costs } & \$ 504,000 \end{array}$ Of the fixed factory overhead costs, $72,000 is avoidable.Assume that Garcia Company can buy 5,000 units of the part from another producer for $105.60 each.The facilities currently used to make the part could be rented out to another manufacturer for $72,000 a year.Garcia Company should _____.

A) make the part to save $19.20 per unit B) make the part to save the company $48,000 C) buy the part to save $14.40 per unit D) buy the part to save the company $72,000 A) make the part to save $19.20 per unit B) make the part to save the company $48,000 C) buy the part to save $14.40 per unit D) buy the part to save the company $72,000

Cena Corporation has a joint process that produces three products: P, G, and A.Each product may be sold at split-off or processed further and then sold.Joint-processing costs for a year amount to $25,000.Other relevant data are as follows: $\begin{array}{rlc} && \text { Separable } & \\ && \text { Processing } & \\ &\text { Sales Value } & \text { Costs after } & \text { Sales Value } \\ \text { Product } & \text {at Split-off } & \text { Split-off } & \text { at Completion }\\ \text { P } & \$ 32,000 & \$ 5,000 & \$ 40,000 \\ \text { G } & 16,500 & 7,500 & 29,000 \\ \text { A } & 6,400 & 8,000 & 10,000 \end{array}$ Once product P is produced, processing it further will cause profits to _____.

A) increase by $8,000 B) decrease by $5,000 C) decrease by $8,000 D) increase by $3,000 A) increase by $8,000 B) decrease by $5,000 C) decrease by $8,000 D) increase by $3,000

The most recent income statement for the Strongsville Branch of the July Company is presented below. $\begin{array}{lr} \text { Sales } & \$ 57,000 \\ \text { Variable costs } & 31,500 \\ \text { Contribution margin } & \$ 25,500 \\ \text { Fixed costs: } & \\ \text { Avoidable } & 13,500 \\ \text { Unavoidable } & 20,000\\ \text { Operating income }&\$8,000 \end{array}$ The July Company is thinking of eliminating the Strongsville Branch because it is showing a loss.If the Strongsville Branch is eliminated, July's operating income will _____.

A) increase $8,000 B) decrease $12,000 C) decrease $31,500 D) not change A) increase $8,000 B) decrease $12,000 C) decrease $31,500 D) not change

Vineyard Industries has three product lines, A, B, and C.The following information is available: $\begin{array}{lrrr}&A&B&C\\ \text { Sales } & \$ 60,000 & \$ 90,000 & \$ 24,000 \\ \text { Variable costs } & \underline{36,000} & \underline{48,000} & \underline{20,000} \\ \text { Contribution margin } & \$ 24,000 & \$ 42,000 & \$ 4,000 \\ \text { Fixed costs: } & & &\\ \text { Avoidable } & 9,000 & 18,000 & 3,000 \\ \text { Unavoidable } & \underline{6,000} & 9,000 & 2,400 \\ \text { Operating income } & \$ 9,000 & \$ 15,000 & \$ 1,400) \end{array}$ Assuming Vineyard Industries can increase the selling price of product C to $30,000, all other information remaining constant, operating income will _____.

A) increase $3,600 B) decrease $3,600 C) decrease $6,000 D) increase $6,000 A) increase $3,600 B) decrease $3,600 C) decrease $6,000 D) increase $6,000

Ernie Company is considering replacing a machine that is presently used in the production of its product.The following data are available: \[\begin{array} { l r r } & \text { Old Machine } & \begin{array} { r } \text { Replacement } \\ \text { Machine } \end{array} \\ \text { Original cost } & \$ 295,000 & \$ 188,000 \\ \text { Useful life in years } & 11 & 5 \\ \text { Current age in years } & 6 & 0 \\ \text { Book value } & \$ 130,000 & - \\ \text { Disposal value now } & \$ 52,000 & - \\ \text { Disposal value in } 5 \text { years } & 0 & 0 \\ \text { Annual cash operating costs } & \$ 39,000 & \$ 24,000 \end{array}\] The _____ is irrelevant.

A) original cost of the replacement machine B) disposal value of the old machine C) book value of the old machine D) annual operating cost of the old machine A) original cost of the replacement machine B) disposal value of the old machine C) book value of the old machine D) annual operating cost of the old machine

Daly Company produces a part that is used in the manufacture of one of its products.The costs associated with the production of 5,000 units of this part are as follows: $\begin{array}{lr} \text { Direct materials } & \$ 108,000 \\ \text { Direct labor } & 156,000 \\ \text { Variable factory overhead } & 72,000 \\ \text { Fixed factory overhead } & 168,000 \\ \text { Total costs } & \$ 504,000 \end{array}$ Of the fixed factory overhead costs, $72,000 is avoidable.Assuming no other use of their facilities, the highest price that Daly Company should be willing to pay for 5,000 units of the part is _____.

A) $504,000 B) $336,000 C) $408,000 D) $288,000 A) $504,000 B) $336,000 C) $408,000 D) $288,000

Exam 6: Relevant Information and Decision Making: Operational Decisions

To make outsourcing services a good option, the services must be reliable, available when needed, and flexible to adapt to changing conditions.

(True/False)

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Question 21

Garcia Company produces a part that is used in the manufacture of one of its products.The costs associated with the production of 5,000 units of this part are as follows: Direct materials \ 108,000 Direct labor 156,000 Variable factory overhead 72,000 Fixed factory overhead 168,000 Total costs \ 504,000 Of the fixed factory overhead costs, $72,000 is avoidable.Assume that Garcia Company can buy 5,000 units of the part from another producer for $105.60 each.The facilities currently used to make the part could be rented out to another manufacturer for $72,000 a year.Garcia Company should _____.

(Multiple Choice)

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Question 22

The profit maximizing volume is the quantities at which marginal cost equals price.

(True/False)

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Question 23

It is profitable to extend processing or to incur additional distribution costs on a joint product if the additional revenue exceeds joint cost.

(True/False)

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Question 24

Cena Corporation has a joint process that produces three products: P, G, and A.Each product may be sold at split-off or processed further and then sold.Joint-processing costs for a year amount to $25,000.Other relevant data are as follows: Separable Processing Sales Value Costs after Sales Value Product at Split-off Split-off at Completion P \ 32,000 \ 5,000 \ 40,000 G 16,500 7,500 29,000 A 6,400 8,000 10,000 Once product P is produced, processing it further will cause profits to _____.

(Multiple Choice)

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Question 25

_____ is the average number of times the inventory is sold per year.

(Multiple Choice)

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Question 26

_____ would be a consideration in a make-or-buy decision.

(Multiple Choice)

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Question 27

The juncture in manufacturing where the joint products become individually identifiable

(Short Answer)

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Question 28

In practice, sunk costs often influence important decisions, especially when a decision maker does not want to admit that a previous decision was a bad decision.

(True/False)

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Question 29

Generally, companies use aggregate measures to determine performance evaluations.

(True/False)

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Question 30

Opportunity cost _____.

(Multiple Choice)

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Question 31

The most recent income statement for the Strongsville Branch of the July Company is presented below. Sales \ 57,000 Variable costs 31,500 Contribution margin \ 25,500 Fixed costs: Avoidable 13,500 Unavoidable 20,000 Operating income \8 ,000 The July Company is thinking of eliminating the Strongsville Branch because it is showing a loss.If the Strongsville Branch is eliminated, July's operating income will _____.

(Multiple Choice)

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Question 32

The _____ is the juncture in manufacturing where the joint products become individually identifiable.

(Multiple Choice)

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Question 33

Vineyard Industries has three product lines, A, B, and C.The following information is available: A B C Sales \ 60,000 \ 90,000 \ 24,000 Variable costs Contribution margin \ 24,000 \ 42,000 \ 4,000 Fixed costs: Avoidable 9,000 18,000 3,000 Unavoidable 9,000 2,400 Operating income \ 9,000 \ 15,000 \ 1,400) Assuming Vineyard Industries can increase the selling price of product C to $30,000, all other information remaining constant, operating income will _____.

(Multiple Choice)

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Question 34

Ernie Company is considering replacing a machine that is presently used in the production of its product.The following data are available: Old Machine Replacement Machine Original cost \ 295,000 \ 188,000 Useful life in years 11 5 Current age in years 6 0 Book value \ 130,000 - Disposal value now \ 52,000 - Disposal value in 5 years 0 0 Annual cash operating costs \ 39,000 \ 24,000 The _____ is irrelevant.

(Multiple Choice)

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Question 35

Daly Company produces a part that is used in the manufacture of one of its products.The costs associated with the production of 5,000 units of this part are as follows: Direct materials \ 108,000 Direct labor 156,000 Variable factory overhead 72,000 Fixed factory overhead 168,000 Total costs \ 504,000 Of the fixed factory overhead costs, $72,000 is avoidable.Assuming no other use of their facilities, the highest price that Daly Company should be willing to pay for 5,000 units of the part is _____.

(Multiple Choice)

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Question 36

In a make-or-buy decision, if facilities are and will remain idle when the decision is made to not make a part internally, then the opportunity cost is zero.

(True/False)

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Question 37

Opportunity costs apply to resources that will be owned.

(True/False)

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Question 38

Number of times the average inventory is sold per year

(Short Answer)

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Question 39

_____ are relevant in deciding whether to add or delete a product or service.

(Multiple Choice)

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Question 40

To make outsourcing services a good option, the services must be reliable, available when needed, and flexible to adapt to changing conditions.

The profit maximizing volume is the quantities at which marginal cost equals price.

It is profitable to extend processing or to incur additional distribution costs on a joint product if the additional revenue exceeds joint cost.

_____ is the average number of times the inventory is sold per year.

_____ would be a consideration in a make-or-buy decision.

The juncture in manufacturing where the joint products become individually identifiable

In practice, sunk costs often influence important decisions, especially when a decision maker does not want to admit that a previous decision was a bad decision.

Generally, companies use aggregate measures to determine performance evaluations.

Opportunity cost _____.

The _____ is the juncture in manufacturing where the joint products become individually identifiable.

In a make-or-buy decision, if facilities are and will remain idle when the decision is made to not make a part internally, then the opportunity cost is zero.

Opportunity costs apply to resources that will be owned.

Number of times the average inventory is sold per year

_____ are relevant in deciding whether to add or delete a product or service.

Managerial Accounting, the Business Organization, and Professional Ethics

Introduction to Cost Behavior and Cost-Volume Relationships

Measurement of Cost Behavior

Cost Management Systems and an Introduction to Activity-Based Costing

Relevant Information and Decision Making With a Focus on Pricing Decisions

Introduction to Budgets and Preparing the Master Budget

Flexible Budgets and Variance Analysis

Management Control Systems and Responsibility Accounting

Management Control in Decentralized Organizations

Capital Budgeting

Cost Allocation

Accounting for Overhead Costs

Job-Costing and Process-Costing Systems

Basic Accounting: Concepts, Techniques, and Conventions

Understanding Corporate Annual Reports: Basic Financial Statements

Understanding and Analyzing Consolidated Financial Statements

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