Financial And Managerial Accounting Ch 7

Question 1

Moreland Clean Company spent €8,000 to produce Product 89, which can be sold as is for €10,000, or processed further incurring additional costs of €3,000 and then be sold for €14,000. Which amounts are relevant to the decision about Product 89?

a. €8,000, €10,000, and €14,000
b. €8,000, €10,000, €3,000 and €14,000
c. €10,000, €3,000, and €14,000
d. €8,000, €3,000, and €14,000

Answer 1

Moreland Clean Company spent €8,000 to produce Product 89, which can be sold as is for €10,000, or processed further incurring additional costs of €3,000 and then be sold for €14,000. Which amounts are relevant to the decision about Product 89?

c. €10,000, €3,000, and €14,000

Question 2

Three steps in management’s decision making process are (1) review results of the decision (2) determine and evaluate possible courses of action (3) make the decision. The steps are prepared in the following order:

a. 1, 2, 3
b. 3, 2, 1
c. 2, 1, 3
d. 2, 3, 1

Answer 2

Three steps in management’s decision making process are (1) review results of the decision (2) determine and evaluate possible courses of action (3) make the decision. The steps are prepared in the following order:

d. 2, 3, 1

Question 3

It costs a company 14 EUR of variable cost and 6 EUR of fixed cost to produce product Z200. Product Z200 sells for 30 EUR. A buyer offers to purchase 3000 units at 18 EUR each. The seller will incur special shipping costs of 5 EUR per unit. If the special offer is accepted and produced with unused capacity, net income will:

a. Increase 3000
b. Increase 12 000
c. Decrease 12 000
d. Decrease 3000

Answer 3

It costs a company 14 EUR of variable cost and 6 EUR of fixed cost to produce product Z200. Product Z200 sells for 30 EUR. A buyer offers to purchase 3000 units at 18 EUR each. The seller will incur special shipping costs of 5 EUR per unit. If the special offer is accepted and produced with unused capacity, net income will:

d. Decrease 3000

Question 4

North Division has the following information:

Sales €1,200,000
Variable expenses 640,000
Fixed expenses 620,000

If this division is eliminated, the fixed expenses will be allocated to the company’s other divisions. What is the incremental effect on net income if the division is dropped?

Answer 4

North Division has the following information:

Sales €1,200,000
Variable expenses 640,000
Fixed expenses 620,000

If this division is eliminated, the fixed expenses will be allocated to the company’s other divisions. What is the incremental effect on net income if the division is dropped?

Answer: 560 000 decrease

Question 5

It costs Garner Company €12 of variable and €5 of fixed costs to produce one bathroom scale which normally sells for €35. A foreign wholesaler offers to purchase 3,000 scales at €15 each. Garner would incur special shipping costs of €1 per scale if the order were accepted. Garner has sufficient unused capacity to produce the 3,000 scales. If the special order is accepted, what will be the effect on net income?

a. €6,000 increase
b. €6,000 decrease
c. €9,000 decrease
d. €45,000 increase

Answer 5

It costs Garner Company €12 of variable and €5 of fixed costs to produce one bathroom scale which normally sells for €35. A foreign wholesaler offers to purchase 3,000 scales at €15 each. Garner would incur special shipping costs of €1 per scale if the order were accepted. Garner has sufficient unused capacity to produce the 3,000 scales. If the special order is accepted, what will be the effect on net income?

a. €6,000 increase

Question 6

In a make-or-buy decision, relevant costs are:

a. Manufacturing costs that will be saved
b. The purchase price of the units
c. Opportunity costs
d. All of the above

Answer 6

In a make-or-buy decision, relevant costs are:

d. All of the above
a. Manufacturing costs that will be saved
b. The purchase price of the units
c. Opportunity costs

Question 7

Which definition best describes an opportunity cost?

a. A hypothetical cost taken into account to represent a benefit
b. A cost relating to a particular business opportunity
c. A cost that has no effect on the current decision
d. The value of the benefit sacrificed in favor of an alternative course of action

Answer 7

Which definition best describes an opportunity cost?

d. The value of the benefit sacrificed in favor of an alternative course of action

Question 8

Kaya SA is currently operating at full capacity. It is considering buying a part from an outside supplier rather than making it in-house. If Kaya purchases the part, it can use the released production capacity to generate additional income of 30 000 from producing a different product. When conducting incremental analysis in this make-or-buy decision, the company should:

a. Ignore the 30 000
b. Add the 30 000 to other costs in the “Make” column
c. Add the 30 000 to other costs in the “Buy” column
d. Subtract the 30 000 from other costs in the “Make” column

Answer 8

Kaya SA is currently operating at full capacity. It is considering buying a part from an outside supplier rather than making it in-house. If Kaya purchases the part, it can use the released production capacity to generate additional income of 30 000 from producing a different product. When conducting incremental analysis in this make-or-buy decision, the company should:

b. Add the 30 000 to other costs in the “Make” column It represents lost income of continuing to make the part.

Question 9

A segment of Hazard Inc. has the following data:

Sales 200 000 EUR
Variable expenses 140 000 EUR
Fixed expenses 100 000 EUR

If this segment is eliminated, what will be the effect on the remaining company? Assume that 50% of the fixed expenses will be eliminated and the rest will be allocated to the segments of the remaining company.

a. 120 000 increase
b. 10 000 decrease
c. 50 000 increase
d. 10 000 increase

Answer 9

A segment of Hazard Inc. has the following data:

Sales 200 000 EUR
Variable expenses 140 000 EUR
Fixed expenses 100 000 EUR

If this segment is eliminated, what will be the effect on the remaining company? Assume that 50% of the fixed expenses will be eliminated and the rest will be allocated to the segments of the remaining company.

b. 10 000 decrease

Question 10

Which of these are all relevant costs?

a. Incremental, opportunity, committed
b. Cash, future, incremental
c. Sunk, cash, opportunity
d. Cash, incremental, allocated

Answer 10

Which of these are all relevant costs?

b. Cash, future, incremental

Question 11

To complete a contract for fitting out a new shop in time for its opening, a refurbishment company has employed three temporary painters for 10 days at £45 per day and moved two carpenters who are paid £70 per day from another job for three days. The penalty for late completion of the shop is £300 but the delay to the carpenters’ current job will only cost £150. What are the relevant costs?

a. £1,650
b. £1,500
c. £1,800
d. £1,770

Answer 11

To complete a contract for fitting out a new shop in time for its opening, a refurbishment company has employed three temporary painters for 10 days at £45 per day and moved two carpenters who are paid £70 per day from another job for three days. The penalty for late completion of the shop is £300 but the delay to the carpenters’ current job will only cost £150. What are the relevant costs?

b. £1,500

(10 x £45 x 3 ) + £150

Question 12

Incremental analysis is the process of identifying the financial data that:

a. Do not change under alternative courses of action
b. Change under alternative courses of action
c. Are mixed under alternative courses of action
d. None of the above

Answer 12

Incremental analysis is the process of identifying the financial data that:

b. Change under alternative courses of action

Question 13

A company is considering the following alternatives:

Alternative A
Revenues 50 000
Variable costs 24 000
Fixed costs 12 000

Alternative B
Revenues 50 000
Variable costs 24 000
Fixed costs 15 000

Which of the following are relevant in choosing between these alternatives?

a. Revenues, variable and fixed costs
b. Variable costs, and fixed costs
c. Variable costs only
d. Fixed costs only

Answer 13

A company is considering the following alternatives:

Alternative A
Revenues 50 000
Variable costs 24 000
Fixed costs 12 000

Alternative B
Revenues 50 000
Variable costs 24 000
Fixed costs 15 000

Which of the following are relevant in choosing between these alternatives?

d. Fixed costs only

Question 14

In a decision to retain or replace equipment, the book value of an old equipment is a(n):

a. Opportunity cost
b. Sunk cost
c. Incremental cost
d. Marginal cost

Answer 14

In a decision to retain or replace equipment, the book value of an old equipment is a(n):

b. Sunk cost

Question 15

A bus company is offering cheap fares for special excursions. It has advertised its trips in newspapers and has already paid a quarter of the advertising fee, and has agreed to pay the final installment soon. Which of the following statements is correct?

a. All the advertising costs are relevant
b. Quarter of the advertising cost is relevant
c. Three-quarters of the advertising cost is relevant
d. None of the advertising costs are relevant

Answer 15

A bus company is offering cheap fares for special excursions. It has advertised its trips in newspapers and has already paid a quarter of the advertising fee, and has agreed to pay the final installment soon. Which of the following statements is correct?

d. None of the advertising costs are relevant As the final installment has been agreed to, it is a committed cost and is not relevant.

Question 16

Der-ann is performing incremental analysis in a make-or-buy decision for Item X. If Der-ann buys Item X, he can use its released productive capacity to produce Item Z. Der-ann will sell Item Z for 360 000 EUR and incur production costs of 240 000 EUR. Der-ann’s incremental analysis should include an opportunity cost of:

a. 360 000 EUR
b. 240 000 EUR
c. 120 000 EUR
d. 0 EUR

Answer 16

Der-ann is performing incremental analysis in a make-or-buy decision for Item X. If Der-ann buys Item X, he can use its released productive capacity to produce Item Z. Der-ann will sell Item Z for 360 000 EUR and incur production costs of 240 000 EUR. Der-ann’s incremental analysis should include an opportunity cost of:

c. 120 000 EUR

Question 17

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 Crigui could avoid €4,000 in fixed overhead costs if it acquires the CD externally. If cost minimization is the major consideration and the company would prefer to buy the 60 000 CDs, what is the maximum external price that Crigui would expect to pay for the units?

a. 34 000
b. 31 000
c. 38 000
d. 35 000

Answer 17

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 Crigui could avoid €4,000 in fixed overhead costs if it acquires the CD externally. If cost minimization is the major consideration and the company would prefer to buy the 60 000 CDs, what is the maximum external price that Crigui would expect to pay for the units?

d. 35 000

Make: 13 000 + 15 000 + 3000 + 7000 = 38 000

Buy: (7000 - 4000) + X = 38 000.

3000 + X = 38 000

X = 35 000

Question 18

The decision rule in sell-or process further decision is: process further as long as the incremental revenue from processing exceeds:

a. Incremental processing costs
b. Variable processing costs
c. Fixed processing costs
d. No correct answer is given

Answer 18

The decision rule in sell-or process further decision is: process further as long as the incremental revenue from processing exceeds:

a. Incremental processing costs

Question 19

If an unprofitable segment is eliminated:

a. Net income will always increase
b. Variable expenses of the eliminated segment will have to be absorbed by other segments
c. Fixed expenses allocated to the eliminated segment will have to be absorbed by other segments
d. Net income will always decrease

Answer 19

If an unprofitable segment is eliminated:

c. Fixed expenses allocated to the eliminated segment will have to be absorbed by other segments.

Question 20

In making business decisions, management ordinarily considers:

a. Quantitative factors, but not qualitative factors
b. Financial information only
c. Both financial and non-financial information
d. Relevant cost, opportunity costs, and sunk costs

Answer 20

In making business decisions, management ordinarily considers:

c. Both financial and non-financial information

Question 21

New Age Makeup produces face cream. Each bottle of face cream costs £10 to produce and can be sold for £13. The bottles can be sold as is, or processed further into sunscreen at an additional cost of £14 each. New Age Makeup could sell the sunscreen bottles for £23 each.

a. Face cream must not be processed further because it decreases profit by £1 each
b. Face cream must be processed further because it increases profit by £3 each
c. Face cream must not be processed further because costs increase more than revenue
d. Face cream must be processed further because its profit is £9 each

Answer 21

New Age Makeup produces face cream. Each bottle of face cream costs £10 to produce and can be sold for £13. The bottles can be sold as is, or processed further into sunscreen at an additional cost of £14 each. New Age Makeup could sell the sunscreen bottles for £23 each.

c. Face cream must not be processed further because costs increase more than revenue.

Question 22

Tasty Bites produces corn chips. The cost of one batch is below: Direct materials £18 Direct labor 13 Variable overhead 11 Fixed overhead 14 An outside supplier has offered to produce the corn chips for £30 per batch. How many £ per batch will Tasty Bites save if it accepts the offer? None of the fixed overhead costs can be reduced.

Answer 22

Tasty Bites produces corn chips. The cost of one batch is below: Direct materials £18 Direct labor 13 Variable overhead 11 Fixed overhead 14 An outside supplier has offered to produce the corn chips for £30 per batch. How many £ per batch will Tasty Bites save if it accepts the offer? None of the fixed overhead costs can be reduced.

Answer: 12/£

Question 23

The decision rule is a sell-or-process-further decision: Process further as long as the incremental revenue from processing exceeds:

a. Incremental processing costs
b. Variable processing costs
c. Fixed processing costs
d. No correct answer is given

Answer 23

The decision rule is a sell-or-process-further decision: Process further as long as the incremental revenue from processing exceeds:

a. Incremental processing costs

Question 24

A company has three product lines, one of which reflects the following results: Sales HK$215,000 Variable expenses 125,000 Contribution margin 90,000 Fixed expenses 130,000 Net loss HK$ (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:

a. increase by HK$40,000
b. decrease by HK$90,000
c. decrease by HK$12,000
d. increase by HK$12,000

Answer 24

A company has three product lines, one of which reflects the following results: Sales HK$215,000 Variable expenses 125,000 Contribution margin 90,000 Fixed expenses 130,000 Net loss HK$ (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:

c. decrease by HK$12,000

Question 25

Dubois SA makes an unassembled product that it currently sells for 55 EUR. Production costs are 20 EUR. Dubois is considering assembling the product and selling it for 68 EUR. The cost to assemble the product is estimated at 12 EUR. What decision should Dubois make? a. Sell before assembly, net income per unit will be 12 EUR greater b. Sell before assembly, net income per unit will be 1 EUR greater c. Process further, net income per unit will be 13 EUR greater d. Process further, net income per unit will be 1 EUR greater

Answer 25

Dubois SA makes an unassembled product that it currently sells for 55 EUR. Production costs are 20 EUR. Dubois is considering assembling the product and selling it for 68 EUR. The cost to assemble the product is estimated at 12 EUR. What decision should Dubois make? d. Process further, net income per unit will be 1 EUR greater

Question 26

Juanita Company must decide whether to make or buy some of its components for the appliances it produces. The costs of producing 166,000 electrical cords for its appliances are as follows. Direct materials $90,000 Variable overhead $32,000 Direct labor 20,000 Fixed overhead 24,000 Instead of making the electrical cords at an average cost per unit of $1.00 ($166,000 ÷ 166,000), the company has an opportunity to buy the cords at $0.90 per unit. If the company purchases the cords, all variable costs and one-fourth of the fixed costs will be eliminated. Prepare an incremental analysis showing whether the company should make or buy the electrical cords.

Answer 26

Juanita Company must decide whether to make or buy some of its components for the appliances it produces. The costs of producing 166,000 electrical cords for its appliances are as follows. Direct materials $90,000 Variable overhead $32,000 Direct labor 20,000 Fixed overhead 24,000 Instead of making the electrical cords at an average cost per unit of $1.00 ($166,000 ÷ 166,000), the company has an opportunity to buy the cords at $0.90 per unit. If the company purchases the cords, all variable costs and one-fourth of the fixed costs will be eliminated. Prepare an incremental analysis showing whether the company should make or buy the electrical cords. Answer: Juanita Company will incur $1,400 of additional costs if it buys the electrical cords rather than making them.

Question 27

Easy Does It manufactures unpainted furniture for the do-it-yourself (DIY) market. It currently sells a child’s rocking chair for $25. Production costs are $12 variable and $8 fixed. Easy Does It is considering painting the rocking chair and selling it for $35. Variable costs to paint each chair are expected to be $9, and fixed costs are expected to be $2.Prepare an analysis showing whether Easy Does It should sell unpainted or painted chairs.

Answer 27

Easy Does It manufactures unpainted furniture for the do-it-yourself (DIY) market. It currently sells a child’s rocking chair for $25. Production costs are $12 variable and $8 fixed. Easy Does It is considering painting the rocking chair and selling it for $35. Variable costs to paint each chair are expected to be $9, and fixed costs are expected to be $2.Prepare an analysis showing whether Easy Does It should sell unpainted or painted chairs. Answer: sell unpainted

Question 28

Jeffcoat Company is considering replacing a factory machine with a new machine. Jeffcoat Company has a factory machine that originally cost $110,000. It has a balance in Accumulated Depreciation of $70,000, so its book value is $40,000. It has a remaining useful life of four years. The company is considering replacing this machine with a new machine. A new machine is available that costs $120,000. It is expected to have zero salvage value at the end of its four-year useful life. If the new machine is acquired, variable manufacturing costs are expected to decrease from $160,000 to $125,000 and the old unit could be sold for $5,000.

Answer 28

Jeffcoat Company is considering replacing a factory machine with a new machine. Jeffcoat Company has a factory machine that originally cost $110,000. It has a balance in Accumulated Depreciation of $70,000, so its book value is $40,000. It has a remaining useful life of four years. The company is considering replacing this machine with a new machine. A new machine is available that costs $120,000. It is expected to have zero salvage value at the end of its four-year useful life. If the new machine is acquired, variable manufacturing costs are expected to decrease from $160,000 to $125,000 and the old unit could be sold for $5,000. Answer: The book value of old machine does not affect the decision. Book value is a sunk cost. Costs which cannot be changed by future decisions (sunk cost) are not relevant in incremental analysis. However, any trade-in allowance or cash disposal value of the existing asset is relevant.

Question 29

Rochester Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes and commercial properties. Last year, the company spent $60,000 refurbishing the lift. It has just determined that another $40,000 of repair work is required. Alternatively, Rochester Roofing has found a newer used lift that is for sale for $170,000. The company estimates that both the old and new lifts would have useful lives of 6 years. However, the lift is more efficient and thus would reduce operating expenses by about $20,000 per year. The company could also rent out the new lift for about $2,000 per year. The old lift is not suitable for rental. The old lift could currently be sold for $25,000 if the new lift is purchased. Prepare an incremental analysis that shows whether the company should repair or replace the equipment.

Answer 29

Rochester Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes and commercial properties. Last year, the company spent $60,000 refurbishing the lift. It has just determined that another $40,000 of repair work is required. Alternatively, Rochester Roofing has found a newer used lift that is for sale for $170,000. The company estimates that both the old and new lifts would have useful lives of 6 years. However, the lift is more efficient and thus would reduce operating expenses by about $20,000 per year. The company could also rent out the new lift for about $2,000 per year. The old lift is not suitable for rental. The old lift could currently be sold for $25,000 if the new lift is purchased. Prepare an incremental analysis that shows whether the company should repair or replace the equipment. Answer: the analysis indicates that purchasing the new machine would increase net income for the 6-year period by $27,000.

Question 30

Lambert, Inc. manufactures several types of accessories. For the year, the knit hats and scarves line had sales of $400,000, variable expenses of $310,000, and fixed expenses of $120,000. Therefore, the knit hats and scarves line had a net loss of $30,000. If Lambert eliminates the knit hats and scarves line, $20,000 of fixed costs will remain. Prepare an analysis showing whether the company should eliminate the knit hats and scarves line.

Answer 30

Lambert, Inc. manufactures several types of accessories. For the year, the knit hats and scarves line had sales of $400,000, variable expenses of $310,000, and fixed expenses of $120,000. Therefore, the knit hats and scarves line had a net loss of $30,000. If Lambert eliminates the knit hats and scarves line, $20,000 of fixed costs will remain. Prepare an analysis showing whether the company should eliminate the knit hats and scarves line. Answer: eliminate the line

Question 31

An outdoor clothing manufacturer has to make decisions about which items to make itself and which to buy-in from third party suppliers. The design costs are a fixed charge, only incurred if the product is made in-house. Which should it buy in? Estimated sales volume (items / pairs) Hats: 25 000. Gloves: 30 000. Scarves: 12 000 Variable cost of materials Hats: 2,58. Gloves: 5,24. Scarves: 8,36 Variable labour per item / pair Hats: 0,21. Gloves: 0,45. Scarves: 0,73 Overhead cost per item / pair Hats: 0,2. Gloves: 0,2. Scarves: 0,2 Design costs Hats: 14 000. Gloves: 7000. Scarves: 15 000 Bought-in costs per item / pair Hats: 3,30. Gloves: 6,00. Scarves: 10,60 a. None b. Hats and gloves c. Hats only d. All

Answer 31

An outdoor clothing manufacturer has to make decisions about which items to make itself and which to buy-in from third party suppliers. The design costs are a fixed charge, only incurred if the product is made in-house. Which should it buy in? Estimated sales volume (items / pairs) Hats: 25 000. Gloves: 30 000. Scarves: 12 000 Variable cost of materials Hats: 2,58. Gloves: 5,24. Scarves: 8,36 Variable labour per item / pair Hats: 0,21. Gloves: 0,45. Scarves: 0,73 Overhead cost per item / pair Hats: 0,2. Gloves: 0,2. Scarves: 0,2 Design costs Hats: 14 000. Gloves: 7000. Scarves: 15 000 Bought-in costs per item / pair Hats: 3,30. Gloves: 6,00. Scarves: 10,60 c. Hats only The made-in cost is 2.58 + 0.21 + (14,000/25,000) = 3.35 so it is more cost effective to buy in hats.

Question 32

A company produces hand-made greetings cards. If labour is limited, in what order should these cards be produced to maximise the company's profits? a. New home, Birthday, Anniversary, Congratulations b. Birthday, Congratulations, New home, Anniversary c. Congratulations, Birthday, New home, Anniversary d. Anniversary, New home, Birthday, Congratulations

Answer 32

A company produces hand-made greetings cards. If labour is limited, in what order should these cards be produced to maximise the company's profits? d. Anniversary, New home, Birthday, Congratulations The contribution per labour hour is maximised by first producing anniversary cards (£2.00), then new home (£1.70), then birthday (£1.60) and finally congratulations (£1.40).

Question 33

A company makes different coloured pens but has a limited supply of materials. Using the data below, in what order of priority should the pens be made: Sales price Blue: 17,50. Black: 21,50. Red: 23,75. Material cost per hour Blue: 6,40. Black: 7,20. Red: 10,50. Labour cost per pen Blue: 3,00. Black. 3,00. Red. 3,00. a. Black, blue, red b. Red, black, blue c. Blue, black, red d. Black, red, blue

Answer 33

A company makes different coloured pens but has a limited supply of materials. Using the data below, in what order of priority should the pens be made: Sales price Blue: 17,50. Black: 21,50. Red: 23,75. Material cost per hour Blue: 6,40. Black: 7,20. Red: 10,50. Labour cost per pen Blue: 3,00. Black. 3,00. Red. 3,00. a. Black, blue, red Calculate the contribution per € of materials.

Question 34

A company is estimating the benefits of investing in a new machine to improve its output. Its current variable costs are £12 per unit and current fixed costs are £48,000. The new machine increases fixed costs by 20% but reduces variable costs by 10%. What is the minimum level of production when it makes sense for them to change to the new method?

Answer 34

A company is estimating the benefits of investing in a new machine to improve its output. Its current variable costs are £12 per unit and current fixed costs are £48,000. The new machine increases fixed costs by 20% but reduces variable costs by 10%. What is the minimum level of production when it makes sense for them to change to the new method? Answer: 8000 Increased fixed costs (£9,600) are divided by the increase in variable cost per unit (£1.20).

Question 35

A company is considering leasing a new photocopier, which would save 20% of printing costs per copy but would increase the annual leasing charge by €400. If they expect to make 200,000 copies per year, what would the cost per copy (in euro cents) need to be to make it worth changing?

Answer 35

A company is considering leasing a new photocopier, which would save 20% of printing costs per copy but would increase the annual leasing charge by €400. If they expect to make 200,000 copies per year, what would the cost per copy (in euro cents) need to be to make it worth changing? Answer: €400/200,000 = 0.2 cents saving per copy. If this 20% of the total cost per copy, the cost per copy will be at least 1 cent.

Question 36

Which of the following factories should be closed down? a. South only b. South and West c. None d. All

Answer 36

Which of the following factories should be closed down? a. South only

Question 37

It costs Dryer Company €26 per unit (€18 variable and €8 fixed) to produce its product, which normally sells for €38 per unit. A foreign wholesaler offers to purchase from Dryer 5,000 units at €21 each. Dryer would incur special shipping costs of €2 per unit if the order were accepted. Dryer has sufficient unused capacity to produce the 5,000 units. If the special order is accepted, what will be the effect on net income? a. €90,000 increase b. €15,000 increase c. €5,000 decrease d. €5,000 increase

Answer 37

It costs Dryer Company €26 per unit (€18 variable and €8 fixed) to produce its product, which normally sells for €38 per unit. A foreign wholesaler offers to purchase from Dryer 5,000 units at €21 each. Dryer would incur special shipping costs of €2 per unit if the order were accepted. Dryer has sufficient unused capacity to produce the 5,000 units. If the special order is accepted, what will be the effect on net income? d. €5,000 increase

Question 38

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. What amount would be considered sunk costs?

Answer 38

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. What amount would be considered sunk costs? Answer: 17 800

Question 39

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: What is the increase in profit if the APPROPRIATE products are processed further? a. 29 800 b. 24 200 c. 96 000 d. 255 800

Answer 39

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: What is the increase in profit if the APPROPRIATE products are processed further? a. 29 800

Question 40

Janssen Company has old inventory on hand that cost €24,000. Its scrap value is €32,000. The inventory could be sold for €80,000 if manufactured further at an additional cost of €24,000. What should Janssen do? a. Sell the inventory for €32,000 scrap value b. Hold the inventory at its €24,000 cost c. Dispose of the inventory to avoid any further decline in value d. Manufacture further and sell it for €80,000

Answer 40

Janssen Company has old inventory on hand that cost €24,000. Its scrap value is €32,000. The inventory could be sold for €80,000 if manufactured further at an additional cost of €24,000. What should Janssen do? d. Manufacture further and sell it for €80,000

Question 41

Baden Company manufactures a product with a unit variable cost of £100 and a unit sales price of £176. Fixed manufacturing costs were £480,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at £140 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows: a. income would decrease by £8,000 b. income would increase by £8,000 c. income would increase by £140,000 d. income would increase by £40,000

Answer 41

Baden Company manufactures a product with a unit variable cost of £100 and a unit sales price of £176. Fixed manufacturing costs were £480,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at £140 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows: d. income would increase by £40,000