Question 1

The period of time over which capacity will be unchanged is:

Accepted Answer

A)  long run. 
B)  sunk cost. 
C)  short run. 
D)  product life cycle. 
A)  long run. 
B)  sunk cost. 
C)  short run. 
D)  product life cycle.

Question 2

Snagless Corporation has received a request for a special order of 9,000 units of product ZX9 for $46.50 each.The normal selling price of this product is $51.60 each,but the units would need to be modified slightly for the customer.The normal unit product cost of product ZX9 is computed as follows:
$$\begin{array} { | l | r | } 
\hline \text { Direct materials } & \$ 17.30 \
\hline \text { Direct labor } & 6.60 \
\hline \text { Variable manufacturing overhead } & 3.80 \
\hline \text { Fixed manufacturing overhead } & 6.70 \
\hline \text { Unit product cost } & \$ 34.40 \
\hline
\end{array}$$ 
Direct labor is a variable cost.The special order would have no effect on the company's total fixed manufacturing overhead costs.The customer would like some modifications made to product ZX9 that would increase the variable costs by $6.20 per unit and that would require a one-time investment of $46,000 in special molds that would have no salvage value.This special order would have no effect on the company's other sales.The company has ample capacity for producing the special order.Required:
Determine the effect on the company's total net operating income of accepting the special order.Show your work!

Accepted Answer

The answer of Snagless Corporation has received a request for...

Question 3

Zantaq Inc has 5,400 machine hours available each month.The following information on the company's three products is available: 
$$\begin{array} { | l | r | r | r | } 
\hline & \text { Bookcases } & \text { Chairs } & \begin{array} { r } 
\text { Side } \
\text { Tables }
\end{array} \
\hline \begin{array} { l } 
\text { Contribution margin per } \
\text { unit }
\end{array} & \$ 15.00 & \$ 18.00 & \$ 7.50 \
\hline \text { Machine hours per unit } & 3 & 2 & 1 \
\hline
\end{array}$$
The market demand is limited to 2,000 units of each of the three products.What is the maximum possible contribution margin that Zantaq could make in any month?

Accepted Answer

A)  $81,000. 
B)  $46,500. 
C)  $43,000. 
D)  $51,000. 
A)  $81,000. 
B)  $46,500. 
C)  $43,000. 
D)  $51,000.

Question 4

The Bogart Company produces 5,000 units of item SLM 46 annually at a total cost of $200,000.
$$\begin{array} { | l | r | } 
\hline \text { Direct materials } & \$ 20,000 \
\hline \text { Direct labor } & 55,000 \
\hline \text { Variable overhead } & 45,000 \
\hline \text { Fixed overhead } & 80,000 \
\hline \text { Total } & \$ 200,000 \
\hline
\end{array}$$
The Conner Company has offered to supply all 5,000 units of SLM 46 per year for $35 per unit.If Bogart accepts the offer,$8 per unit of the fixed overhead would be saved.In addition,some of Bogart's leased facilities could be vacated,reducing lease payments by $30,000 per year.At what price would Bogart be indifferent to Conner's offer?

Accepted Answer

A)  $40. 
B)  $38. 
C)  $35. 
D)  $24. 
A)  $40. 
B)  $38. 
C)  $35. 
D)  $24.

Question 5

The Young Company has gathered the following information for a unit of its most popular product:
$$\begin{array} { | l | r | } 
\hline \text { Direct materials } & \$ 12 \
\hline \text { Direct labor } & 6 \
\hline \text { Overhead (40\% variable) } & 10 \
\hline \text { Cost to manufacture } & 28 \
\hline \text { Desired markup (60\%) } & 14 \
\hline \text { Target selling price } & \$ 42 \
\hline
\end{array}$$
 The above cost information is based on 10,000 units.A distributor has offered to buy 2,000 units at a price of $32 per unit.This special order would not disturb regular sales.Special packaging and other selling expenses would be an additional $0.50 per unit for the special order.If the special order is accepted,Young's operating profits will increase by:

Accepted Answer

A)  $4,000. 
B)  $6,400. 
C)  $8,000. 
D)  $19,000. 
A)  $4,000. 
B)  $6,400. 
C)  $8,000. 
D)  $19,000.

Question 6

The constraint at Trump Inc.is an expensive milling machine.The three products listed below use this constrained resource.
 $$\begin{array} { | l | r | r | r | } 
\hline & \mathbf { 9 P } & \mathbf { 8 L } & \mathbf { 7 N } \
\hline \text { Selling price per unit } & \$ 404.58 & \$ 478.74 & \$ 358.44 \
\hline \text { Variable cost per unit } & \$ 308.88 & \$ 371.30 & \$ 285.36 \
\hline \begin{array} { l } 
\text { Time on the constraint } \
\text { (minutes) }
\end{array} & 6.60 & 7.90 & 5.80 \
\hline
\end{array}$$
Required:
a.Rank the products in order of their current profitability from the most profitable to the least profitable.In other words,rank the products in the order in which they should be emphasized.Show your work!
b.Assume that sufficient constraint time is available to satisfy demand for all but the least profitable product.Up to how much should the company be willing to pay to acquire more of the constrained resource?

Accepted Answer

a.
Resulting ranking of products: 9P,8L,

Question 7

Everett Tool Company has two retail stores,one in Dallas and the other in Sand Creek.The Dallas store had sales of $200,000,a contribution margin of 35 percent,and a segment margin of $28,000.The company's two stores have total sales of $500,000,an average contribution margin of 32 percent,and a total segment margin of $62,000.Required:
Prepare a segmented income statement for Everett.

Accepted Answer

The answer of Everett Tool Company has two retail stores,one...

Question 8

Atuso,Inc.produces three products.Data concerning the selling prices and unit costs of the three products appear below:
 
Fixed costs are applied to the products on the basis of direct labor hours.Demand for the three products exceeds the company's productive capacity.The grinding machine is the constraint,with only 2,400 minutes of grinding machine time available this week.Required:
a.Given the grinding machine constraint,which product should be emphasized? Support your answer with appropriate calculations.b.Assuming that there is still unfilled demand for the product that the company should emphasize in part (a)above,up to how much should the company be willing to pay for an additional hour of grinding machine time?

Accepted Answer

a.The product to emphasize can be determ

Question 9

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: 
$$\begin{array} { | l | c | c | c | c | } 
\hline \text { Material } & \begin{array} { c } 
\text { Units in } \
\text { Stock }
\end{array} & \begin{array} { c } 
\text { Original } \
\text { Cost Per } \
\text { Uni }
\end{array} & \begin{array} { c } 
\text { Current } \
\text { Market Price } \
\text { Per Unit }
\end{array} & \begin{array} { c } 
\text { Disposal } \
\text { Value Per } \
\text { Unit }
\end{array} \
 0 \times 8 & 18,600 & \$ 3.60 & \$ 3.70 & \$ 3.36 \
\hline \text { POW6 } & 38,280 & \$ 3.20 & \$ 2.80 & \$ 1.65 \
\hline
\end{array}$$
Material OX8 is in use in many of the company's products and is routinely replenished.Material POW6 is no longer used by the company in any of its normal products and existing stocks would not be replenished once they are used up.What would be the relevant cost of the materials,in total,for purposes of determining a minimum acceptable price for the order for product JOLT? (CIMA adapted)

Accepted Answer

A)  $146,790. 
B)  $199,080. 
C)  $155,610. 
D)  $212,340. 
A)  $146,790. 
B)  $199,080. 
C)  $155,610. 
D)  $212,340.

Question 10

The Camel Company produces 10,000 units of item Roto 454 annually at a total cost of $190,000.
$$\begin{array} { | l | r | } 
\hline \text { Direct materials } & \$ 20,000 \
\hline \text { Direct labor } & 55,000 \
\hline \text { Variable overhead } & 45,000 \
\hline \text { Fixed overhead } & 70,000 \
\hline \text { Total } & \$ 190,000 \
\hline
\end{array}$$
The Yukon Company has offered to supply 10,000 units of Roto 454 per year for $18 per unit.If Camel accepts the offer,$4 per unit of the fixed overhead would be saved.In addition,some of Camel's facilities could be rented to a third party for $15,000 per year.At what price would Camel be indifferent to Yukon's offer?

Accepted Answer

A)  $17.00. 
B)  $17.50. 
C)  $18.50. 
D)  $19.50. 
A)  $17.00. 
B)  $17.50. 
C)  $18.50. 
D)  $19.50.

Question 11

Brevard Industries produces two products.Information about the products is as follows:
$$\begin{array} { | l | r | r | } 
\hline & \text { Procuct 1 } & \text { Procuct 2 } \
\hline \text { Units produced and sold } & \$ 4,000 & 10,000 \
\hline \text { Selling price per unit } & \$ 15 & \$ 13 \
\hline \text { Variable costs per unit } & 9 & 8 \
\hline
\end{array}$$
 The company's fixed costs totaled $70,000,of which $15,000 can be directly traced to Product 1 and $40,000 can be directly traced to Product 2.The effect on the firm's profits if Product 2 is dropped would be a:

Accepted Answer

A)  $10,000 increase. 
B)  $35,000 increase. 
C)  $35,000 decrease. 
D)  $10,000 decrease. 
A)  $10,000 increase. 
B)  $35,000 increase. 
C)  $35,000 decrease. 
D)  $10,000 decrease.

Question 12

Macro Electronics manufactures low-cost,consumer-grade computers.It sells these computers to various electronics retailers to market under store brand names.It manufactures two computers,the Lightning 2.0 and the Lightning 2.4,which differ in terms of speed,memory,and hard drive capacity.The following information is available:
$$\begin{array} { | l | r r | } 
\hline & \text { Lightning 2.0 } & \text { Lightring 24 } \
\hline \text { Direct materials } & \$ 90 & \$ 110 \
\hline \text { Direct labor } & 60 & 90 \
\hline \text { Variable overhead } & 30 & 30 \
\hline \text { Fixed overhead } & 180 & 240 \
\hline \text { Total cost per unit } & \$ 360 & \$ 470 \
\hline \text { Selling price } & 600 & 780 \
\hline \text { Units produced and sold } & 6,000 & 3,000 \
\hline
\end{array}$$
The average wage rate is $30 per hour.The plant has a capacity of 32,000 direct labor-hours.Required:
1.A nationwide discount chain has approached Macro with an offer to buy 2,000 Lightning 2.0 computers and 2,000 Lightning 2.4 computers if the unit prices are lowered to $350 and $450,respectively.
a.If Macro accepts the offer,how many direct labor-hours will be required to produce the additional computers?
b.How much will the profit increase (or decrease)if Macro accepts this proposal? All other prices will remain the same.
2.Suppose that the customer has offered instead to buy up to 3,000 each of the two models at $350 and $450,respectively.
a.How many of each product should be manufactured and sold? Assume current demand will not be affected by the special order.Also assume that the company cannot increase its production capacity to meet the extra demand.
b.How much will the profits change if this order is accepted instead?

Accepted Answer

The answer of Macro Electronics manufactures low-cost,consumer-grade computers.It sells these...

Question 13

Why is it important to consider opportunity costs in a make-or-buy decision?

Accepted Answer

Opportunity costs can represen

Question 14

A study has been conducted to determine if Product A should be dropped.Sales of the product total $200,000 per year;variable expenses total $140,000 per year.Fixed expenses charged to the product total $90,000 per year.The company estimates that $40,000 of these fixed expenses will continue even if the product is dropped.These data indicate that if Product A is dropped,the company's overall net operating income would:

Accepted Answer

A)  decrease by $20,000 per year. 
B)  increase by $20,000 per year. 
C)  decrease by $10,000 per year. 
D)  increase by $30,000 per year. 
A)  decrease by $20,000 per year. 
B)  increase by $20,000 per year. 
C)  decrease by $10,000 per year. 
D)  increase by $30,000 per year.

Question 15

Which of the following costs are irrelevant for a special order that will allow an organization to utilize some of its present idle capacity?

Accepted Answer

A)  Direct materials. 
B)  Indirect materials. 
C)  Variable overhead. 
D)  Unavoidable fixed overheaD.
Fixed costs will be incurred whether the special order is undertaken ornot. 
A)  Direct materials. 
B)  Indirect materials. 
C)  Variable overhead. 
D)  Unavoidable fixed overheaD.
Fixed costs will be incurred whether the special order is undertaken ornot.

Question 16

Morgan Inc has 5,400 machine hours available each month.The following information on the company's three products is available:
$$\begin{array} { | l | r | r | r | } 
\hline & \text { Product } & \text { Product } & \text { Product } \
& 1 & 2 & \mathbf { 3 } \
\hline \text { Contribution margin per } & \$ 15.00 & \$ 18.00 & \$ 7.50 \
\text { unit } & & & \
\hline \text { Machine hours per unit } & 3 & 2 & 1 \
\hline
\end{array}$$
 If market demand exceeds the available capacity,in what sequence should orders be filled to maximize the company's profits?

Accepted Answer

A)  Product 1 first,product 2 second,and product 3 third. 
B)  Product 2 first,product 3 second,and product 1 third. 
C)  Product 3 first,product 2 second,and product 1 third. 
D)  Product 3 first,product 1 second,and product 2 thirD.
P1 CM/hr = 15/3 = $5;P2: 18/2 = $9;P3: 7.50/1 = $7.50 
A)  Product 1 first,product 2 second,and product 3 third. 
B)  Product 2 first,product 3 second,and product 1 third. 
C)  Product 3 first,product 2 second,and product 1 third. 
D)  Product 3 first,product 1 second,and product 2 thirD.
P1 CM/hr = 15/3 = $5;P2: 18/2 = $9;P3: 7.50/1 = $7.50

Question 17

Muzik Corporation uses part X43 in one of its products.The company's Accounting Department reports the following costs of producing the 16,000 units of the part that are needed every year.
$$\begin{array} { | l | r | } 
\hline & \text { Per Unit } \
\hline \text { Direct materials } & \$ 2.90 \
\hline \text { Direct labor } & \$ 3.90 \
\hline \text { Variable overhead } & \$ 6.70 \
\hline \text { Supervisor's salary } & \$ 7.20 \
\hline \text { Depreciation of special equipment } & \$ 8.30 \
\hline \text { Allocated general overhead } & \$ 5.40 \
\hline
\end{array}$$ 
An outside supplier has offered to make the part and sell it to the company for $28.00 each.If this offer is accepted,the supervisor's salary and all of the variable costs,including direct labor,can be avoided.The special equipment used to make the part was purchased many years ago and has no salvage value or other use.The allocated general overhead represents fixed costs of the entire company.If the outside supplier's offer were accepted,only $22,000 of these allocated general overhead costs would be avoided.In addition,the space used to produce part X43 could be used to make more of one of the company's other products,generating an additional segment margin of $22,000 per year for that product.Required:
a.Prepare a report that shows the effect on the company's total net operating income of buying part X43from the supplier rather than continuing to make it inside the company.
b.Which alternative should the company choose?

Accepted Answer

@#IMG-DLM& a.
b.The total cost of the make alterna

Question 18

The Minton Company has gathered the following information for a unit of its most popular product: 
$$\begin{array} { | l | r | } 
\hline \text { Direct materials } & \$ 6 \
\hline \text { Direct labor } & 3 \
\hline \text { Overhead (40\% variable) } & - 5 \
\hline \text { Cost to manufacture } & 14 \
\hline \text { Desired markup (60\%) } & - 7 \
\hline \text { Target selling price } & 21 \
\hline
\end{array}$$
The above cost information is based on 4,000 units.A foreign distributor has offered to buy 1,000 units at a price of $16 per unit.This special order would not disturb regular sales.Variable shipping and other selling expenses would be an additional $1 per unit for the special order.If the special order is accepted,Minton's operating profits will increase by:

Accepted Answer

A)  $1,000. 
B)  $1,600. 
C)  $2,000. 
D)  $4,000. 
A)  $1,000. 
B)  $1,600. 
C)  $2,000. 
D)  $4,000.

Question 19

Bacon Company makes four products in a single facility.These products have the following unit product costs:   
Additional data concerning these products are listed below. 
 
The grinding machines are the constraint in the production facility.A total of 53,600 minutes are available per month on these machines.Direct labor is a variable cost in this company.Up to how much should the company be willing to pay for one additional minute of grinding machine time if the company has made the best use of the existing grinding machine capacity? (Round off to the nearest whole cent. )

Accepted Answer

A)  $35.90. 
B)  $0.00. 
C)  $8.58. 
D)  $11.60. 
A)  $35.90. 
B)  $0.00. 
C)  $8.58. 
D)  $11.60.

Question 20

Mobley Company makes three products in a single facility.Data concerning these products follow:
 
The mixing machines are potentially the constraint in the production facility.A total of 6,300 minutes are available per month on these machines.Direct labor is a variable cost in this company.Required:
a.How many minutes of mixing machine time would be required to satisfy demand for all three products?
b.How much of each product should be produced to maximize net operating income? (Round off to the nearest whole unit. )
c.Up to how much should the company be willing to pay for one additional hour of mixing machine time if the company has made the best use of the existing mixing machine capacity? (Round off to the nearest whole cent. )

Accepted Answer

a.Demand on the mixing machine

The period of time over which capacity will be unchanged is:

Why is it important to consider opportunity costs in a make-or-buy decision?

Which of the following costs are irrelevant for a special order that will allow an organization to utilize some of its present idle capacity?

Cost Accounting: Information for Decision Making

Fundamentals of Cost-Volume-Profit Analysis

Cost Estimation

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Activity-Based Costing

Fundamentals of Cost Management

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Business Unit Performance Measurement

Transfer Pricing

Fundamentals of Variance Analysis

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

Filters

Exam 4: Fundamentals of Cost Analysis for Decision Making

The period of time over which capacity will be unchanged is:

Why is it important to consider opportunity costs in a make-or-buy decision?

Which of the following costs are irrelevant for a special order that will allow an organization to utilize some of its present idle capacity?

Cost Accounting: Information for Decision Making

Fundamentals of Cost-Volume-Profit Analysis

Cost Estimation

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Activity-Based Costing

Fundamentals of Cost Management

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Business Unit Performance Measurement

Transfer Pricing

Fundamentals of Variance Analysis

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

Filters