The Overdale plant has two categories of overhead: maintenance and inspection.

Costs expected for these categories for the coming year are as follows:

• Machine maintenance $120,000

• Inspection $200,000

• Total expected overhead: $320,000 (120,000 + 200,000 from above)

Expected activity levels for the coming year are as follows:

• 80,000 direct labor hours

• 40,000 machine hours

• 2,500 inspections

The following data has been assembled for use in developing a bid for a proposed job:

Direct materials……………………….$1,500

Direct labor…………………………...$5,000

Machine hours…………………………...400

Number of inspections……………………..6

Direct labor hours………………………..750

1. Using direct labor hours to assign all overhead (the traditional method), the total cost of the potential job would be:

a. $6,000

b. $3,000

c. $1,600

d. $6,500

e. $9,500

2. The Overdale plant has two categories of overhead: maintenance and inspection.

Costs expected for these categories for the coming year are as follows:

• Machine maintenance $120,000

• Inspection $200,000

• Total expected overhead: $320,000 (120,000 + 200,000 from above)

Expected activity levels for the coming year are as follows:

• 80,000 direct labor hours

• 40,000 machine hours

• 2,500 inspections

The following data has been assembled for use in developing a bid for a proposed job:

Direct materials……………………….$1,500

Direct labor…………………………...$5,000

Machine hours…………………………...400

Number of inspections……………………..6

Direct labor hours………………………..750

Using activity-based costing and the appropriate cost drivers, the total cost of the potential job would be

a. $9,230

b. $8,180

c. $11,180

d. $9,500

e. $3,180

3. Galaxy Industries manufactures 15,000 components per year as one part of its production activities.

The costs to manufacture the part are as follows:

Direct materials………………………..$150,000

Direct labor……………………………$240,000

Variable manufacturing overhead……...$90,000

Fixed manufacturing overhead

(allocated common costs)……………..$120,000

Total costs…………………………….$600,000

• If the component is purchased, a part of the manufacturing facility can be rented to another business for $5,000.

• An outside supplier has offered to sell the component to Galaxy for $34 each.

If Galaxy purchases the component instead of manufacturing it, the effect on Galaxy’s net income would be a...

a. $95,000 decrease

b. $35,000 decrease

c. $30,000 decrease

d. $25,000 decrease

e. $90,000 decrease

4. Tudor company produces several electronic devices in their Minnesota factory. Tudor Company has the following costs related to manufacturing and selling 100,000 RZ devices.

Direct materials………………………………………………………..$200,000

Direct labor……………………………………………………………$450,000

Variable manufacturing overhead……………………………………...$70,000

Depreciation on equipment only used for the RZ devices…………….$32,000

Depreciation on factory (allocated to RZ device production)……….$100,000

Salary of RZ device production manager……………………………...$80,000

Variable selling costs…………………………………………………..$25,000

Sales manager's salary (allocated to RZ device production)…………..$30,000

Total…………………………………………………………………..$987,000

The sales price of the RZ device was recently reduced to $9.00 each due to new competition. Management is considering discontinuation of the RZ device. It will continue to produce other products in the same factory. If the RZ devices are discontinued, the RZ production manager will be fired and the equipment used to make the RZ devices will be put in storage.

By how much will Tudor's cash flow change if they discontinue the widget and do not have the 100,000 units of widget sales next year?

a. $130,000 decrease

b. $100,000 decrease

c. $108,000 increase

d. $87,000 increase

e. $75,000 decrease