Deck 13: Short-Run Decision Making: Relevant Costing

Question 1

What is the decision called when a manager must decide whether to produce a part or to purchase it from an external supplier?

A) keep or drop
B) special order
C) process further
D) make or buy

Answer 1

D

Question 2

Western Industries manufactures 40,000 components per year.The manufacturing cost of the components was determined as follows: $$\begin{array} { l r } \text { Direct materials } & \$ 75,000 \\\text { Direct labour } & 120,000 \\\text { Variable manufacturing overhead } & 45,000 \\\text { Fixed manufacturing overhead } & 60,000 \\\text { Total } & \$ 300,000\end{array}$$ An outside supplier has offered to sell the component for $12.75. Western Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component from the outside supplier.
What is the effect on income if Western purchases the component from the outside supplier?

A) a $135,000 increase
B) a $165,000 decrease
C) a $195,000 increase
D) a $225,000 decrease

Answer 2

a $225,000 decrease

Question 3

Bonder Company makes a variety of paper products.One product is printer paper,packaged 2,000 sheets to a box.One box normally sells for $30 A large bank offered to purchase 5,000 boxes at $26 per box.Costs per box are as follows: $\begin{array}{lr}\text { Direct materials } & \$ 128 \\\text { Direct labour } & 53 \\\text { Variable overhead } & 21 \\\text { Fixed overhead } & 65\end{array}$ No variable marketing costs would be incurred on the order.The company is operating significantly below the maximum production capacity.No fixed costs are avoidable.Which of the following represents the solution?

A) Do not accept the order because income will decrease by $35,000.
B) Do not accept the order because income will decrease by $5,000.
C) Accept the order because income will increase by $35,000.
D) Accept the order because income will increase by $5,000.

Answer 3

Accept the order because income will increase by $35,000.

Question 4

Andrews Industries manufactures 10,000 components per year.The manufacturing cost of the components was determined as follows: $$\begin{array} { l r } \text { Direct materials } & \$ 140,000 \\\text { Direct labour } & 230,000 \\\text { Inspecting products } & 50,000 \\\text { Providing power } & 20,000 \\\text { Providing supervision } & 30,000 \\\text { Setting up equipment } & 50,000 \\\text { Moving materials } & 10,000 \\\text { Total } & \$ 530,000\end{array}$$ If the component is not produced by Andrews,inspection of products and provision of power costs will be only 10% of the production costs,moving materials costs and setting up equipment costs will be only 50% of the production costs,and supervision costs will amount to only 40% of the production amount.An outside supplier has offered to sell the component for $45. Suppose Andrews Industries purchases the component from the outside supplier.What will be the effect on Andrew's income?

A) a $31,000 increase
B) a $31,000 decrease
C) a $91,000 increase
D) a $91,000 decrease

Question 5

Houser Corporation manufactures a part for its production cycle.The costs per unit for 5,000 units of this part are as follows: $$\begin{array} { l r } \text { Direct materials } & \$ 32 \\\text { Direct labour } & 40 \\\text { Variable overhead } & 16 \\\text { Fixed overhead } & 32 \\\text { Total } & \$ 120\end{array}$$ Kingston Company has offered to sell Houser Corporation 5,000 units of the part for $112 per unit.If Houser Corporation accepts Kingston Company's offer,total fixed costs will be reduced to $60,000.Which alternative is more desirable,and by what amount is it more desirable? Alternative Amount

A) Make $20,000
B) Make $120,000
C) Buy $40,000
D) Buy $100,000

Question 6

A company is considering a special order for 2,000 units to be priced at $18.90 (the normal price would be $21.50).The order would require specialized materials costing $4.00 per unit.Direct labour and variable factory overhead would cost $2.15 per unit.Fixed factory overhead is $2.20 per unit.However,the company has excess capacity,and acceptance of the order would not raise total fixed factory overhead.The warehouse,however,would have to add capacity costing $2,600.Which of the following is relevant to the special order?

A) $2.20 fixed factory overhead per unit
B) $2.60 per unit of revenue
C) $18.90 selling price per unit of special order
D) $21.50 normal selling price

Question 7

Which of the following is NOT a step in the decision-making model?

A) Determine costs and benefits for both feasible and unfeasible alternatives.
B) Identify alternatives.
C) Consider qualitative factors.
D) Total the relevant costs and benefits for each alternative.

Question 8

What kind of decision involves a choice between internal and external production?

A) a make-or-buy decision
B) a keep-or-drop decision
C) a sell-or-process-further decision
D) a special-order decision

Question 9

Which of the following is an important qualitative factor to consider regarding a special order?

A) variable costs associated with the special order
B) avoidable fixed costs associated with the special order
C) the effect the sale of special-order units will have on the sale of regularly priced units
D) incremental revenue from the special order

Question 10

Which of the following costs are future costs that differ across alternatives?

A) opportunity costs
B) sunk costs
C) relevant costs
D) variable costs

Question 11

Walbom Company produced 200 defective units last month at a unit manufacturing cost of $40.The defective units were discovered before leaving the plant.Walbom can sell them "as is" for $30 or can rework them at a cost of $25 and sell them at the regular price of $60.What is the total relevant cost of reworking the defective units?

A) $2,250
B) $3,000
C) $5,000
D) $6,750

Question 12

Miller Company produces speakers for home stereo units.The speakers are sold to retail stores for $30.Manufacturing and other costs are as follows: $\begin{array}{llr}\text { Variable costs per unit: } &&{\text { Fixed costs per month: }} \\\text { Direct materials } & \$ 9.00& \text { Factory overhead } & \$ 120,000 \\\text { Direct labour } & 4.50& \text { Selling and administrative } & 60,000 \\\text { Factory overhead } & 3.00 &\text { Total } & \$ 180,000\\\text { Distribution } & 1.50 \\\text { Total } & \$ 18.00\end{array}$ The variable distribution costs are for transportation to the retail stores.The current production and sales volume is 20,000 per year.Capacity is 25,000 units per year. A manufacturing firm has offered a one-year contract to supply speaker parts at a cost of $17.00 per unit.If Miller Company accepts the offer,it will be able to rent unused space to an outside firm for $18,000 per year.All other information remains the same as the original data.What is the effect on profits if Miller Company buys from the firm?

A) a decrease of $6,000
B) a decrease of $19,000
C) an increase of $19,000
D) an increase of $38,000

Question 13

Berkman Company is considering the purchase of new equipment to replace one-year-old equipment that is not achieving the expected results.The following information is available: $$\begin{array} { l l } \text { Expected maintenance costs of new machine } & \$ 13,000 \text { per year } \\\text { Purchase price of existing machine } & \$ 160,000 \\\text { Expected cost savings of new machine } & \$ 30,000 \text { per year } \\\text { Expected maintenance costs of exi sting machine } & \$ 8,000 \text { per year } \\\text { Resale value of existing machine } & \$ 45,000\end{array}$$ Which of these items is NOT relevant to this decision?

A) the expected maintenance costs of the new machine
B) the purchase cost of the existing machine
C) the expected maintenance costs of the existing machine
D) the expected resale value of the existing machine

Question 14

Atlantic Industries manufactures 40,000 components per year.The manufacturing cost of the components was determined as follows: $$\begin{array} { l r } \text { Direct materials } & \$ 75,000 \\\text { Direct labour } & 120,000 \\\text { Variable manufacturing overhead } & 45,000 \\\text { Fixed manufacturing overhead } & 60,000 \\\text { Total } & \$ 300,000\end{array}$$ An outside supplier has offered to sell the component for $12.75. What is the effect on income if Atlantic Industries purchases the component from the outside supplier?

A) a $30,000 increase
B) a $30,000 decrease
C) a $270,000 increase
D) a $270,000 decrease

Question 15

What is the term for the act of choosing among alternatives with an immediate or limited end in view?

A) assessing feasible alternatives
B) strategic decision making
C) constructing a decision model
D) short-run decision making

Question 16

Sasha Company produced 50 defective units last month at a unit manufacturing cost of $40.The defective units were discovered before leaving the plant.Sasha can sell them "as is" for $30 or can rework them at a cost of $25 and sell them at the regular price of $60.Which of the following is NOT relevant to the sell-or-rework decision?

A) $25 for rework
B) $30 selling price of defective units
C) $40 manufacturing cost
D) $60 regular selling price

Question 17

Which resources can be purchased in the amount needed and at the time of use?

A) lumpy resources
B) flexible resources
C) committed resources
D) product resources

Question 18

What kind of decision focuses on whether a one-off order should be accepted or rejected?

A) a relevant decision
B) a make-or-buy decision
C) a sell-or-process-further decision
D) a special-order decision

Question 19

Which qualitative factor should NOT be considered when evaluating a make-or-buy decision?

A) the quality of the outside supplier's product
B) whether the outside supplier can provide the needed quantities
C) whether the outside supplier can provide the product when it is needed
D) the split-off costs of the product

Question 20

Which of the following costs is the depreciation of equipment an example of?

A) a relevant cost
B) an opportunity cost
C) a sunk cost
D) a variable cost

Question 21

The following information pertains to Erickson Company's three products: $\begin{array}{rrrr} & \text { A } & \text { B } & C \\\text { Unit sales per year } & 250 & 400 & 250\\\text { Selling price per unit } & \$ 9.00 & \$ 12.00 & \$ 9.00 \\\text { Variable costs per unit } & 3.60 & 9.00 & 9.90\\\text { Unit contribution margin } &\$ 5.40&\$ 3.00&\$(0.90)\\\text { Contribution margin ratio }&60\%&25\%&(10)\%\end{array}$ Assume that product C is discontinued and the extra space is rented for $300 per month.All other information remains the same as the original data.What would be the effect on annual profits?

A) Annual profits would decrease by $75.
B) Annual profits would remain the same.
C) Annual profits would increase by $75.
D) Annual profits would increase by $525.

Question 22

A manager needs to determine whether a product line (or segment)should continue or be eliminated.What kind of decision does the manager need to make?

A) a keep-or-drop decision
B) a make-or-buy decision
C) a sell-or-process-further decision
D) a special-order decision

Question 23

Which of the following is the greatest concern when managers are considering the optimal product mix?

A) maximizing revenue
B) minimizing cost
C) maximizing profit
D) minimizing selling and administrative expense

Question 24

Reggie Corporation manufactures a single product with the following unit costs for 1,000 units: $\begin{array}{lr}\text { Direct materials } & \$ 2,400 \\\text { Direct labour } & 960 \\\text { Factory overhead ( } 30 \% \text { variable) } & 1,800 \\\text { Selling expenses (50\% variable) } & 900 \\\text { Administrative expenses (10\% variable) } & 840 \\\text { Total per unit } & \$ 6.900\end{array}$ Recently,a company approached Reggie Corporation about buying 100 units for $5,100 each.Currently,the models are sold to dealers for $7,800.Reggie Corporation's capacity is sufficient to produce the extra 100 units.No additional selling expenses would be incurred on the special order. Suppose the special order is accepted.How much will income change?

A) It will decrease by $180,000.
B) It will not change.
C) It will increase by $111,600.
D) It will increase by $398,400.

Question 25

The following information relates to a product produced by Creamer Company: $\begin{array}{lr}\text { Direct materials } & \$ 24 \\\text { Direct labour } & 15 \\\text { Variable overhead } & 30 \\\text { Fined overhead } & 18 \\\text { Unit cost } & \$ 87\end{array}$ Fixed selling costs are $500,000 per year,and variable selling costs are $12 per unit sold.Although production capacity is 600,000 units per year,the company expects to produce only 400,000 units next year.The product normally sells for $120 each.A customer has offered to buy 60,000 units for $90 each. What is the incremental cost per unit associated with the special order?

A) $64
B) $69
C) $81
D) $84

Question 26

Aerotoy Company makes toy airplanes.One plane is an excellent replica of a 737,which sells for $5.Vacation Airlines wants to purchase 12,000 planes at $1.75 each to give to children who are flying unaccompanied.Costs per plane are as follows: $\begin{array}{lr}\text { Direct materials } & \$ 1.00 \\\text { Direct labour } & 0.50 \\\text { Variable overhead } & 0.10 \\\text { Fixed overhead } & 0.90\end{array}$ No variable marketing costs would be incurred.The company is operating significantly below the maximum productive capacity.No fixed costs are avoidable.However,Vacation Airlines wants its own logo and colours on the planes.The cost of the decals is $0.01 per plane,and a special machine costing $1,500 would be required to affix the decals.After the order is complete,the machine would be scrapped.Which of the following represents the solution?

A) Do not accept the order,because income will decrease by $1,500.
B) Do not accept the order,because income will decrease by $180.
C) Accept the order,because income will increase by $180.
D) Accept the order,because income will increase by $300.

Question 27

The operations of Smits Corporation are divided into the Childs Division and the Jackson Division.Projections for the next year are as follows: $\begin{array}{lrrr}&\text { Childs } & \text { Jackson } & \\&\text { Division } & \text { Division } & \text { Total }\\\text { Sales } & \$ 250,000 & \$ 180,000 & \$ 430,000 \\\text { Variable costs } & 90.000 & 100.000 & 190.000\\\text { Contribution margin } & \$ 160,000 & \$ 80,000 & \$ 240,000 \\\text { Direct fixed costs } & 75,000 & 62,500 & 137,500\\\text { Segment margin } & \$ 85,000 & \$ 17,500 & \$ 102,500 \\\text { Allocated common costs } & 35,000 & 27,500 & 62,500 \\\text { Operating income (loss) } & \$ 50,000 & \$(10,000) & \$ 40,000\end{array}$ Suppose the Jackson Division were dropped.What would be the operating income for Smits Corporation?

A) $22,500
B) $40,000
C) $50,000
D) $60,000

Question 28

Bars Manufacturing Company produces Products A1,B2,C3,and D4 through a joint process.The joint costs amount to $200,000. $\begin{array}{rrrrr}&&&\text { If Processed Further }\\&\text { Units }&\text { Sales Value }&\text {Additional}&\text { Sales }\\\text { Product }&\text { Produced }&\text { Sales split-Off }&\text { Costs }&\text { Value }\\A 1 & 3,000 & \$ 10,000 & \$ 2,500 & \$ 15,000 \\\mathrm{~B} 2 & 5,000 & 30,000 & 3,000 & 35,000 \\\mathrm{C} 3 & 4,000 & 20,000 & 4,000 & 25,000 \\\mathrm{D} 4 & 6,000 & 40,000 & 6,000 & 45,000\end{array}$ Suppose Product B2 is processed further.What will be the effect on profits?

A) Profits will decrease by $3,000.
B) Profits will increase by $2,000.
C) Profits will increase by $30,000.
D) Profits will increase by $32,000.

Question 29

Canning Company uses a joint process to produce products W,X,Y,and Z.Each product may be sold at its split-off point or processed further.Additional processing costs of specific products are entirely variable.Joint processing costs for a single batch of joint products are $120,000.Other relevant data are as follows: $\begin{array}{lll}& \text { Sales Value } & \text { Additional } & \text { Sales Value of } \\\text { Product } & \text { at Split-Off } & \text { Processing Costs } & \text { Final Froduct }\\W&\$ 40,000 & \$ 60,000 & \$ 80,000 \\X&\$ 12,000 & \$ 4,000 & \$ 20,000 \\Y&\$ 20,000 & \$ 32,000 & \$ 120,000 \\Z&\$ 28,000 & \$ 20,000 & \$ 32,000 \\&\$ 100.000 & \$ 116000 & \$ 252,000\end{array}$ Which of the following actions should be taken by Canning?

A) Process W further.
B) Sell X now.
C) Process Y further.
D) Process Z further.

Question 30

Gundy Company manufactures a product with the following costs per unit at the expected production of 30,000 units: $\begin{array}{lr}\text { Direct materials } & \$ 4 \\\text { Direct labour } & 12 \\\text { Variable manufacturing overhead } & 6 \\\text { Fixed manufacturing overhead } & 8\end{array}$ The company has the capacity to produce 30,000 units.The product regularly sells for $40.A wholesaler has offered to pay $32 a unit for 2,000 units. Suppose the firm chooses to accept the special order and reject some regular sales.What would be the effect on Gundy's operating income?

A) $0
B) a $4,000 increase
C) a $16,000 decrease
D) a $20,000 increase

Question 31

Boone Products had the following unit costs: $\begin{array}{lr}\text { Direct materials } & \$ 24 \\\text { Direct labour } & 10 \\\text { Variable factory overhead } & 8 \\\text { Fixed factory overhead (allocated) } & 18\end{array}$ A one-time customer has offered to buy 2,000 units at a special price of $48 per unit.Because of capacity constraints,1,000 units will need to be produced during overtime.Overtime premium is $8 per unit.Suppose the special order is accepted.How much additional profit (loss)will be generated?

A) a $30,000 loss
B) a $24,000 loss
C) a $4,000 loss
D) a $4,000 profit

Question 32

The operations of Slickers Corporation are divided into the North Division and the South Division.Projections for the next year are as follows: $\begin{array}{lrrr}&\text { North } & \text { South } & \\&\text { Division } & \text { Division } & \text { Total }\\\text { Sales } & \$ 420,000 & \$ 252,000 & \$ 672,000 \\\text { Variable costs } & 147,000 & 115,500 & 262,500\\\text { Contribution margin } & \$ 273,000 & \$ 136,500 & \$ 409,500 \\\text { Direct fixed costs } & 126,000 & 105,000 & 231,000\\\text { Segment margin } & \$ 147,000 & \$ 31,500 & \$ 178,500 \\\text { Allocated common costs } & 63,000 & 47,250 & 110,250 \\\text { Operating income (loss) } & \$ 84,000 & \$(15,750) & \$ 68,250\\\end{array}$ Suppose the South Division were dropped.What would be the operating income for Slickers Corporation?

A) $36,750
B) $68,250
C) $84,000
D) $99,750

Question 33

Which of the following costs is NOT relevant to a decision to sell a product at split-off or process the product further and then sell the product?

A) joint costs allocated to the product
B) the selling price of the product at split-off
C) the additional processing costs after split-off
D) the selling price of the product after further processing

Question 34

Walton Company manufactures a product with the following costs per unit at the expected production level of 84,000 units: $\begin{array}{lr}\text { Direct materials } & \$ 12 \\\text { Direct labour } & 36 \\\text { Variable manufacturing overhead } & 18 \\\text { Fixed manufacturing overhead } & 24\end{array}$ The company has the capacity to produce 90,000 units.The product regularly sells for $120.A wholesaler has offered to pay $110 a unit for 7,500 units.Suppose the special order is accepted.What would be the effect on Walton's operating income?

A) a $75,000 decrease
B) a $249,000 increase
C) a $429,000 increase
D) a $495,000 increase

Question 35

Information about three joint products follows: $$\begin{array} { l r r r } &A&B&C\\\text { Anticipated production } & 5,000 \mathrm {~kg} & 1,000 \mathrm {~kg} & 2,000 \mathrm {~kg} \\\text { Selling price/kg at split-off } & \$ 10 & \$ 30 & \$ 16 \\\text { Additional processing costs/kg after split-off } & & & \\\quad \text { (all variable) } & \$ 6 & \$ 12 & \$ 24 \\\text { Selling price/kg after further processing } & \$ 20 & \$ 40 & \$ 50\end{array}$$ The cost of the joint process is $60,000.Which of the joint products should be sold at split-off?

A) joint product A
B) joint product B
C) joint product C
D) none of the joint products

Question 36

Meco Company produces a product that has a regular selling price of $360 per unit.At a typical monthly production volume of 2,000 units,the product's average unit cost of goods sold amounts to $270.Included in this average is $120,000 of fixed manufacturing costs.All selling and administrative costs are fixed and amount to $30,000 per month. Meco Company has just received a special order for 1,000 units at $240 per unit.The buyer will pay transportation,and the regular selling price will not be affected if Meco accepts the order.
Assume that Meco Company has excess capacity.Suppose Meco accepts the order.What would be the effect on profits?

A) a $30,000 increase
B) a $30,000 decrease
C) a $60,000 increase
D) a $60,000 decrease

Question 37

What kind of decision involves potentially converting crude oil into diesel fuel?

A) a relevant decision
B) a make-or-buy decision
C) a sell-or-process-further decision
D) a special order decision

Question 38

Information about three joint products follows: $\begin{array}{lrrr}&A&B&C\\\text { Anticipated production } & 12,000 \mathrm{~kg} & 8,000 \mathrm{~kg} & 7,000 \mathrm{~kg} \\\text { Selling price/kg at split-off } & \$ 16 & \$ 26 & \$ 48 \\\text { Additional processing costs/kg after split-off } & & & \\\text { (all variable) } & \$ 8 & \$ 20 & \$ 20 \\\text { Selling price/kg after further processing } & \$ 20 & \$ 40 & \$ 70\end{array}$ The cost of the joint process is $140,000.Which of the joint products should be processed further?

A) joint product A
B) joint product B
C) joint product C
D) all joint products

Question 39

The following information relates to a product produced by Creamer Company: $\begin{array}{lr}\text { Direct materials } & \$ 24 \\\text { Direct labour } & 15 \\\text { Variable overhead } & 30 \\\text { Fined overhead } & 18 \\\text { Unit cost } & \$ 87\end{array}$ Fixed selling costs are $500,000 per year,and variable selling costs are $12 per unit sold.Although production capacity is 600,000 units per year,the company expects to produce only 400,000 units next year.The product normally sells for $120 each.A customer has offered to buy 60,000 units for $90 each. Suppose the firm produces the special order.What would be the effect on Creamer's annual income?

A) a $360,000 increase
B) a $360,000 decrease
C) a $540,000 increase
D) a $540,000 decrease

Question 40

Rose Manufacturing Company had the following unit costs: $\begin{array}{lr}\text { Direct materials } & \$ 24 \\\text { Direct labour } & 8 \\\text { Variable factory overhead } & 10 \\\text { Fixed factory overhead (allocated) } & 18\end{array}$ A one-time customer has offered to buy 2,000 units at a special price of $48 per unit.Assume that sufficient unused production capacity exists to produce the order and no regular customers will be affected by the order.How much additional profit (loss)will be generated by accepting the special order?

A) a $84,000 loss
B) a $24,000 loss
C) a $12,000 profit
D) a $96,000 profit

Question 41

Winston Custom Cabinetry makes cabinets to order and prices the completed jobs at product cost plus 40%.Recently,Winston finished a job and billed the customer $560.Suppose direct materials for the job cost $130 and direct labour cost $180.What was the applied overhead for the job?

A) $90
B) $179
C) $250
D) $350

Question 42

What is the term for limited resources and limited demand for a product?

A) resources
B) contribution factors
C) constraints
D) optima

Question 43

Refer to the Figure.Assume Victor's Detailing uses target costing.The company requires a 40% profit on each job.Which of the following should Victor's Detailing do?

A) reduce the required percentage to stay in business
B) ask customers to pay more
C) sell services at the price customers are willing to pay
D) find a way to reduce costs

Question 44

Refer to the Figure.Assume Victor's Detailing uses target costing to set price on each job.The company requires a 40% profit on each job.What price should Victor's Detailing quote to a new customer?

A) $24
B) $30
C) $54
D) $57

Question 45

Refer to the Figure.Assume Victor's Detailing uses markup to set the price on each job.The company requires an 80% markup on each job.What price should Victor's Detailing quote to a new customer?

A) $24
B) $30
C) $54
D) $84

Question 46

When multiple constraints are present,which of the following mathematical techniques is used to solve the product mix problem?

A) linear programming
B) relevant costing
C) differential costing
D) excel programming

Question 47

Entertech Company is designing a tablet aimed at families travelling with young children.The company believes that the product can be sold for $150,and it requires a 25% profit on new products.What is the target cost of the tablet?

A) $28.00
B) $112.50
C) $140.00
D) $187.50

Question 48

Acron Construction charges each customer a price equal to the cost of direct materials and direct labour plus 40%.Job 126 included the following costs: $\begin{array} { l } \text {Direct materials }&\$60,000\\ \text {Direct labour }&\$45,000\\\end{array}$
What price does Acron charge for Job 126?

A) $46,800
B) $65,400
C) $86,000
D) $148,400

Question 49

Travers Company sets prices equal to cost plus 55%.Recently,Travers charged a customer a price of $60 for an item.What was the cost of the item to Travers?

A) $25.20
B) $38.71
C) $40.32
D) $42.00

Question 50

Refer to the Figure.Which of the following is a qualitative factor that Tine would consider when making the decision to accept or reject the special order?

A) the cost of yarn and backing
B) the cost of setup labour
C) the no-layoff policy
D) the use of machinery

Question 51

Refer to the Figure.Which of the following is a cost of the special order in addition to yarn and backing?

A) setup costs
B) variable overhead
C) depreciation on machinery
D) direct labour

Question 52

Gibb,Inc.has just designed a new product with a target cost of $54.Gibb requires new products to have a profit of 25%.What is the target price for the new product?

A) $13.50
B) $54.00
C) $64.00
D) $72.00

Question 53

Jester Company was making a product for $70 and selling it for $90.A competitor began selling the same product for $78.Suppose Jester wants to meet the competition's price and maintain the same amount of profit per unit.What would be the target cost?

A) $18
B) $38
C) $48
D) $58

Question 54

RJB Building routinely bids on construction jobs.RJB first determines the budgeted product cost of the job and then applies a markup of 45%.If a bid of $20,000 is submitted for a new job,which of the following statements applies?

A) The budgeted product cost is $20,000.
B) $6,207 includes selling and administrative expense and profit.
C) All costs pertaining to the job total $20,000.
D) $6,207 includes fixed overhead,selling and administrative expense,and profit.

Question 55

The Tucker Company charges cost plus 30%.What is the price of an item with cost equal to $65?

A) $12.50
B) $50.00
C) $60.00
D) $84.50

Question 56

Home Hardware sets prices at cost plus 90% of cost.The cost of a cordless drill kit is $45.What price is charged by Home Hardware for the cordless drill kit?

A) $27.50
B) $34.00
C) $42.00
D) $85.50

Question 57

Shredder Inc.produces paper shredders.Shredder is considering a new shredder design for home offices.The marketing vice president believes that a basic unit in a variety of attractive colours could be sold for $100.Shredder requires that all new products yield 35% profit.What is the target cost of the new shredder?

A) $21
B) $35
C) $65
D) $135

Question 58

What costing method determines the cost of a product or service on the basis of the price that customers are willing to pay?

A) relevant costing
B) differential costing
C) target costing
D) product costing

Question 59

Classify Company has a product that its sales department believes can be sold for $40 each.Classify requires that all new products yield 20% profit.What is the target cost of the new product?

A) $4.00
B) $25.50
C) $26.00
D) $32.00

Question 60

MacAllister Company charges cost plus 35%.Suppose the price of an item is $90.What is the item's cost?

A) $50.00
B) $62.50
C) $66.67
D) $80.00

Question 61

$\begin{array}{lr}\text { Direct materials } & \$ 8 \\\text { Direct labour } & 2 \\\text { Variable overhead } & 1 \\\text { Fixed overhead } & 4\end{array}$ ProPrinters uses 100,000 units of 87A per year.Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12.Fixed overhead is unavoidable.

-Refer to the Figure.What is the contribution margin per unit of scarce resource (machine time)for Model K-3?

A) $6
B) $12
C) $14
D) $24

Question 62

$\begin{array}{lr}\text { Direct materials } & \$ 8 \\\text { Direct labour } & 2 \\\text { Variable overhead } & 1 \\\text { Fixed overhead } & 4\end{array}$ ProPrinters uses 100,000 units of 87A per year.Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12.Fixed overhead is unavoidable.

-Refer to the Figure.Suppose Alpha Company can sell only 5,500 units of each model.How many units of Model K-3 should be produced?

A) 312
B) 1,250
C) 2,750
D) 5,000

Question 63

Refer to the Figure.If Tine accepts the special order,by how much will operating income increase or decrease?

A) $13,000 decrease
B) $3,000 decrease
C) $3,000 increase
D) $13,000 increase

Question 64

$\begin{array}{lr}\text { Direct materials } & \$ 8 \\\text { Direct labour } & 2 \\\text { Variable overhead } & 1 \\\text { Fixed overhead } & 4\end{array}$ ProPrinters uses 100,000 units of 87A per year.Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12.Fixed overhead is unavoidable.

-Refer to the Figure.Assume that specialized moulding equipment time is the only constrained resource,and that EBP can sell as many tubs and sinks as it can produce.How many sinks should be sold?

A) 0
B) 810
C) 2,025
D) 2,050

Question 65

$\begin{array}{lr}\text { Direct materials } & \$ 8 \\\text { Direct labour } & 2 \\\text { Variable overhead } & 1 \\\text { Fixed overhead } & 4\end{array}$ ProPrinters uses 100,000 units of 87A per year.Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12.Fixed overhead is unavoidable.

-Refer to the Figure.What is the contribution margin per hour of machine time for a fancy leg?

A) $6
B) $8
C) $12
D) $24

Question 66

Refer to the Figure.Which of the following is NOT relevant to the special-order decision?

A) the cost of yarn and backing
B) the direct labour cost
C) the machining and electricity cost
D) the $30 price

Question 67

$\begin{array}{lr}\text { Direct materials } & \$ 8 \\\text { Direct labour } & 2 \\\text { Variable overhead } & 1 \\\text { Fixed overhead } & 4\end{array}$ ProPrinters uses 100,000 units of 87A per year.Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12.Fixed overhead is unavoidable.

-Refer to the Figure.Which of the following is a qualitative factor that would NOT affect ProPrinters'decision?

A) Making the product in-house would allow ProPrinters to focus on the remaining labourers in the company
B) Ordering from Printers R Us would give ProPrinters a chance to see how well Printers R Us could meet JIT standards for ProPrinters' other products.
C) Printers R US is known for the reliability of its products.
D) Making the part in-house would help ProPrinters avoid layoffs of direct and indirect labour.

Question 68

$\begin{array}{lr}\text { Direct materials } & \$ 8 \\\text { Direct labour } & 2 \\\text { Variable overhead } & 1 \\\text { Fixed overhead } & 4\end{array}$ ProPrinters uses 100,000 units of 87A per year.Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12.Fixed overhead is unavoidable.

-Refer to the Figure.Assume that EBP can sell as many as 1,000 sinks and 500 tubs per year.How many tubs should EBP produce?

A) 0
B) 410
C) 500
D) 675

Question 69

$\begin{array}{lr}\text { Direct materials } & \$ 8 \\\text { Direct labour } & 2 \\\text { Variable overhead } & 1 \\\text { Fixed overhead } & 4\end{array}$ ProPrinters uses 100,000 units of 87A per year.Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12.Fixed overhead is unavoidable.

-Refer to the Figure.What is the amount of machine time for model K-3 in terms of percentage of a machine hour?

A) 0.10
B) 0.20
C) 0.25
D) 0.40

Question 70

$\begin{array}{lr}\text { Direct materials } & \$ 8 \\\text { Direct labour } & 2 \\\text { Variable overhead } & 1 \\\text { Fixed overhead } & 4\end{array}$ ProPrinters uses 100,000 units of 87A per year.Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12.Fixed overhead is unavoidable.

-Refer to the Figure.What is the contribution margin per hour of machine time for a plain leg?

A) $8
B) $12
C) $24
D) $32

Question 71

$\begin{array}{lr}\text { Direct materials } & \$ 8 \\\text { Direct labour } & 2 \\\text { Variable overhead } & 1 \\\text { Fixed overhead } & 4\end{array}$ ProPrinters uses 100,000 units of 87A per year.Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12.Fixed overhead is unavoidable.

-Refer to the Figure.Suppose Alpha Company can sell only 5,500 units of each model.How many units of Model P-4 should be produced?

A) 1,375
B) 2,750
C) 5,000
D) 5,500

Question 72

$\begin{array}{lr}\text { Direct materials } & \$ 8 \\\text { Direct labour } & 2 \\\text { Variable overhead } & 1 \\\text { Fixed overhead } & 4\end{array}$ ProPrinters uses 100,000 units of 87A per year.Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12.Fixed overhead is unavoidable.

-Refer to the Figure.What is the contribution margin per unit of scarce resource (machine time)for Model P-4?

A) $12
B) $14
C) $24
D) $28

Question 73

$\begin{array}{lr}\text { Direct materials } & \$ 8 \\\text { Direct labour } & 2 \\\text { Variable overhead } & 1 \\\text { Fixed overhead } & 4\end{array}$ ProPrinters uses 100,000 units of 87A per year.Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12.Fixed overhead is unavoidable.

-Refer to the Figure.What is the amount of machine time for model P-4 in terms of a percentage of a machine hour?

A) 0.10
B) 0.25
C) 0.30
D) 0.50

Question 74

$\begin{array}{lr}\text { Direct materials } & \$ 8 \\\text { Direct labour } & 2 \\\text { Variable overhead } & 1 \\\text { Fixed overhead } & 4\end{array}$ ProPrinters uses 100,000 units of 87A per year.Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12.Fixed overhead is unavoidable.

-Refer to the Figure.Should ProPrinters make or buy the part,and what would be the financial consequence?

A) make the part because it will save $100,000 over buying it
B) buy the part because it will save $100,000 over making it
C) make the part because it will save $1,100,000 over buying it
D) buy the part because it will save $1,100,000 over making it

Question 75

$\begin{array}{lr}\text { Direct materials } & \$ 8 \\\text { Direct labour } & 2 \\\text { Variable overhead } & 1 \\\text { Fixed overhead } & 4\end{array}$ ProPrinters uses 100,000 units of 87A per year.Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12.Fixed overhead is unavoidable.

-Refer to the Figure.What is the total contribution margin of the optimal mix of plain and fancy legs?

A) $240,000
B) $280,000
C) $320,000
D) $480,000

Question 76

$\begin{array}{lr}\text { Direct materials } & \$ 8 \\\text { Direct labour } & 2 \\\text { Variable overhead } & 1 \\\text { Fixed overhead } & 4\end{array}$ ProPrinters uses 100,000 units of 87A per year.Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12.Fixed overhead is unavoidable.

-Refer to the Figure.What is Butry's profit from refining one batch of dactylyte if both dac and tyl are sold at the split-off point?

A) $6,000
B) $7,000
C) $12,000
D) $15,000

Question 77

$\begin{array}{lr}\text { Direct materials } & \$ 8 \\\text { Direct labour } & 2 \\\text { Variable overhead } & 1 \\\text { Fixed overhead } & 4\end{array}$ ProPrinters uses 100,000 units of 87A per year.Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12.Fixed overhead is unavoidable.

-Refer to the Figure.Suppose that ProPrinters discovers that other costs will increase by $7,000 per year if the component is purchased rather than made internally.What is the financial effect of this make-or-buy decision?

A) make the part because it will save $100,000 over buying it
B) buy the part because it will save $100,000 over making it
C) make the part because it will save $107,000 over buying it
D) buy the part because it will save $107,000 over making it

Question 78

$\begin{array}{lr}\text { Direct materials } & \$ 8 \\\text { Direct labour } & 2 \\\text { Variable overhead } & 1 \\\text { Fixed overhead } & 4\end{array}$ ProPrinters uses 100,000 units of 87A per year.Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12.Fixed overhead is unavoidable.

-Refer to the Figure.What is the contribution margin per hour of specialized moulding time for tubs?

A) $30.00
B) $35.00
C) $68.33
D) $70.00

Question 79

$\begin{array}{lr}\text { Direct materials } & \$ 8 \\\text { Direct labour } & 2 \\\text { Variable overhead } & 1 \\\text { Fixed overhead } & 4\end{array}$ ProPrinters uses 100,000 units of 87A per year.Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12.Fixed overhead is unavoidable.

-Refer to the Figure.How many of each type of leg must be sold to optimize total contribution margin?

A) 40,000 plain legs; 0 fancy legs
B) 0 plain legs; 20,000 fancy legs
C) 10,000 plain legs; 0 fancy legs
D) 20,000 plain legs; 10,000 fancy legs

Question 80

$\begin{array}{lr}\text { Direct materials } & \$ 8 \\\text { Direct labour } & 2 \\\text { Variable overhead } & 1 \\\text { Fixed overhead } & 4\end{array}$ ProPrinters uses 100,000 units of 87A per year.Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12.Fixed overhead is unavoidable.

-Refer to the Figure.What is the contribution margin per hour of specialized moulding equipment time for sinks?

A) $33.33
B) $35.00
C) $68.33
D) $70.00