1 The following are the unit costs of making and selling an item at a volume of 30,000 units per month (which represents the company's capacity): Assume the company has 300 units left over from last year which have small defects and which will have to
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| 1 |  | The following are the unit costs of making and selling an item at a volume of 30,000 units per month (which represents the company's capacity):
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| [removed]A) | $8 per unit | ||
| [removed]B) | $18 per unit | ||
| [removed]C) | $32 per unit | ||
| [removed]D) | $36 per unit | ||
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| 2 | | The Hudson Corporation has 8,000 obsolete units of a product that are carried in inventory at a manufacturing cost of $160,000. If the units are remachined for $40,000, they could be sold for $72,000. Alternatively, the units could be sold for scrap for $28,000. Which alternative is more desirable and what are the total relevant costs for that alternative? | ||
| [removed]A) | Remachine; $40,000. | ||
| [removed]B) | Remachine; $200,000. | ||
| [removed]C) | Scrap; $132,000. | ||
| [removed]D) | Scrap; $160,000. | ||
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| 3 | | A study has been conducted to determine if one of the product lines of Kalamazoo Company should be discontinued. This product line generates a contribution margin of $300,000 per year. Fixed expenses allocated to the product line are $390,000 per year. It is estimated that $240,000 of these fixed expenses could be eliminated if the product line is discontinued. These data indicate that if the product line is discontinued, the company's overall net operating income would: | ||
| [removed]A) | decrease by $60,000 per year. | ||
| [removed]B) | increase by $60,000 per year. | ||
| [removed]C) | decrease by $150,000 per year. | ||
| [removed]D) | increase by $150,000 per year. | ||
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| 4 | | Ferguson Company manufactures 4,000 parts per year; the parts are used in the assembly of one of the company's products. The unit product cost of these parts is:
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| [removed]A) | $8,000 increase. | ||
| [removed]B) | $8,000 decrease. | ||
| [removed]C) | $16,000 increase. | ||
| [removed]D) | $16,000 decrease. | ||
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| 5 | | The managers of a firm are in the process of deciding whether to accept or reject a special order for one of its products. A cost that is not relevant to their decision is the: | ||
| [removed]A) | common fixed overhead that will continue if the special offer is not accepted. | ||
| [removed]B) | direct materials. | ||
| [removed]C) | fixed overhead that will be avoided if the special offer is accepted. | ||
| [removed]D) | variable overhead. | ||
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| 6 | | Stewart Corporation manufactures solar powered calculators. The company can manufacture 1,200,000 calculators a year at a variable cost of $3,000,000 and a fixed cost of $1,800,000. Based on management's projections for next year, 960,000 calculators will be sold at the regular price of $20.00 each. A special order has been received for 240,000 calculators to be sold at a 70% discount off the regular price. Total fixed costs would be unaffected by this order. By what amount would the company's net operating income be increased as a result of the special order? | ||
| [removed]A) | $480,000 | ||
| [removed]B) | $600,000 | ||
| [removed]C) | $840,000 | ||
| [removed]D) | $1,440,000 | ||
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| 7 | | Marion Company sells its product for $126 per unit. The company's unit product cost based on the full capacity of 300,000 units is as follows.
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| [removed]A) | $84. | ||
| [removed]B) | $90. | ||
| [removed]C) | $96. | ||
| [removed]D) | $108. | ||
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| 8 | | Consider the following production and cost data for the two versions of the product that is manufactured and sold by Bellows Corporation:
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| [removed]A) | $3,380,000. | ||
| [removed]B) | $3,900,000. | ||
| [removed]C) | $3,640,000. | ||
| [removed]D) | $7,280,000. | ||
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| 9 | | Edgecomb Pottery makes plates, bowls, and platters using glazes that develop starburst patterns when the pottery is fired. The art of creating this pottery, which includes throwing, bisquing, and glazing, is a craft that takes years of experience to master. The demand for the company's pottery far exceeds the company's studio capacity. Information concerning three of the company's products follows.
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| [removed]A) | $7 | ||
| [removed]B) | $24 | ||
| [removed]C) | $26 | ||
| [removed]D) | $72 | ||
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| 10 | | Sentinel Inc. manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $50,000 per year. The company allocates these costs to the joint products on the basis of their total sales value at the split-off point. These sales values are as follows: Product X, $25,000; Product Y, $45,000; and Product Z, $30,000. Each product may be sold at the split-off point or processed further. The additional processing costs and the sales value after further processing for each product (on an annual basis) are as follows.
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| [removed]A) | Product X | ||
| [removed]B) | Product X and Y | ||
| [removed]C) | Product X and Z | ||
| [removed]D) | Products Y and Y | ||
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