Exam 7: Fraud, Internal Control, and Cash

The elimination of an unprofitable product line may adversely affect the remaining product lines.

A decision whether to continue to make a product or buy it externally depends on the external price and the amount of variable and fixed costs that can be eliminated assuming no alternative uses of resources.

Use the following information for questions Paul Bunyon Lumber Co. produces several products that can be sold at the split-off point or processed further and then sold. The following results are from a recent period: Sales Value Additional Sales Value after Product at Split-off Variable Costs Further Processing Green lumber \ 159,600 \ 24,000 \ 178,000 Rough lumber 124,000 28,200 173,600 Sawdust 102,000 19.600 130,000 -What is the increase in profit if the appropriate products are processed further?

A company decided to replace an old machine with a new machine.Which of the following is considered a relevant cost?

NF Toy Company is unsure of whether to sell its product assembled or unassembled.The unit cost of the unassembled product is $24 and NF Toy would sell it for $52.The cost to assemble the product is estimated at $17 per unit and the company believes the market would support a price of $68 on the assembled unit.What decision should NF Toy make?

Incremental analysis would not be appropriate for

Ruth Company produces 1,000 units of a necessary component with the following costs: Direct Materials \ 27,000 Direct Labor 16,000 Variable Overhead 4,000 Fixed Overhead 7,000 None of Ruth Company's fixed overhead costs can be reduced, but another product could be made that would increase profit contribution by $8,000 if the components were acquired externally.If cost minimization is the major consideration and the company would prefer to buy the components, what is the maximum external price that Ruth Company would be willing to accept to acquire the 1,000 units externally?

Use the following information for questions Hi-Tech Inc. has several outdated computers that cost a total of $17,800 and could be sold as scrap for $4,600. They could be updated for an additional $2,400 and sold. If Hi-Tech updates the computers and sells them, net income will increase by $9,000. -At what price were the updated versions sold?

Abel Company produces three versions of baseball bats: wood, aluminum, and hard rubber.A condensed segmented income statement for a recent period follows: $\begin{array}{lrrrr}&\text { Wood }&\text { Aluminum }&\text { Hard Rubber }&\text { Total }\\\text { Sales } & \$ 500,000 & \$ 200,000 & \$ 65,000 & \$ 765,000 \\\text { Variable expenses } & 325,000 & 140,000 & 58,000 & 523,000 \\\text { Contribution margin } & 175,000 & 60,000 & 7,000 & 242,000 \\\text { Fixed expenses } & 75,000 & 35,000 & 22,000 & 132,000 \\\text { Net income (loss) }&\$100,000&\$25,000&\$(15,000)&\$110,000\end{array}$ Assume all of the fixed expenses for the hard rubber line are avoidable.What will be total net income if the line is dropped?

The costs incurred prior to the split-off point are referred to as

Pratt Company has old inventory on hand that cost $15,000.Its scrap value is $20,000.The inventory could be sold for $50,000 if manufactured further at an additional cost of $15,000.What should Pratt do?

In a make-or-buy decision, which costs can be considered relevant?

Accounting contributes to management's decision-making process through internal reports that review the actual impact of the decision.

It costs Lannon Fields $28 of variable costs and $12 of allocated fixed costs to produce an industrial trash can that sells for $60.A buyer in Mexico offers to purchase 3,000 units at $36 each.Lannon Fields has excess capacity and can handle the additional production.What effect will acceptance of the offer have on net income?

Costs incurred before the split-off point are

Crigui Music produces 60,000 CDs on which to record music.The CDs have the following costs: Direct Materials \ 13,000 Direct Labor 15,000 Variable Overhead 3,000 Fixed Overhead 7,000 None of Crigui's fixed overhead costs can be reduced, but another product could be made that would increase profit contribution by $4,000 if the CDs were acquired externally.If cost minimization is the major consideration and the company would prefer to buy the CDs, what is the maximum external price that Crigui would be willing to accept to acquire the 60,000 units externally?

Which of the following will always be a relevant cost?

Which of the following is not relevant information in a decision whether old equipment presently being used should be replaced by new equipment?

Decision-making involves choosing among alternative courses of action.

A company has three product lines, one of which reflects the following results: Sales \ 215,000 Variable expenses 125,000 Contribution margin 90,000 Fixed expenses 130,000 Net loss \ (40,000) If this product line is eliminated, 60% of the fixed expenses can be eliminated and the other 40% will be allocated to other product lines.If management decides to eliminate this product line, the company's net income will