1) A company is considering the following alternatives: Option 1 Option 2 Revenues $330,000 $330,000 Variable costs 120,000 98,000 Fixed costs 165,000 165,000 Which of the following are relevant in choosing between the alternatives? a. Variable costs b. Revenues c. Fixed costs d. Variable costs and fixed costs 2) Which type of incurred costs are not relevant in decision-making (i.e., they have no bearing on future events) and should be excluded in decision-making? a. sunk costs. b. avoidable costs. c. unavoidable costs. d. differential costs. 3) Which of the following is a disadvantage of outsourcing? a. freeing up capacity. b. freeing up capital. c. transferring production and technology risks. d. limiting ability to upsize or downsize production. 4) When operating in a constrained environment, which products should be produced? a. products with the highest contribution margin per unit. b. products with the highest contribution margin per unit of the constrained process. c. products with the highest selling price. d. products with the lowest allocated joint cost. ACC 117 Spring 2021 Extra-Credit Quiz 2 5) It costs Maker Company $22 of variable and $15 of fixed costs to produce one Panini press which normally sells for $57. A foreign wholesaler offers to purchase 1,000 Panini presses at $40 each. Maker would incur special shipping costs of $5 per press if the order were accepted. Maker has sufficient unused capacity to produce the 1,000 Panini presses. If the special order is accepted, what will be the effect on net income? a. $13,000 decrease. b. $13,000 increase. c. $22,000 decrease. d. $7,000 increase. 6) Preston Company manufactures a product with a unit variable cost of $140 and a unit sales price of $264. Fixed manufacturing costs were $720,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 3,000 units at $210 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 $162,000. b. Income would increase by $156,000. c. Income would increase by $6,000. d. Income would increase by $210,000. 7) Sardine Kitchen Company produces three sizes of crock pots: small, medium & large. A condensed segmented income statement for a recent period follows: Large Medium Small Total Sales $200,000 $200,000 $105,000 $505,000 Variable expenses 125,000 110,000 65,000 300,000 Contribution margin 75,000 90,000 40,000 205,000 Fixed expenses 55,000 55,000 47,000 157,000 Net income (loss) $ 20,000 $ 35,000 $(7,000) $ 48,000 Assume none of the fixed expenses for the small-size crock pot are avoidable. What will be total net income if the small-size crock pot line is dropped? a. $47,000. b. $13,000. c. $8,000. d. $55,000. ACC 117 Spring 2021 Extra-Credit Quiz 3 8) Lean Foods produces a variety of snack products, including fried vegetables. The cost of one batch of fried vegetables is below: Direct materials $12.00 Direct labor 10.00 Variable overhead 7.00 Fixed overhead 9.00 An outside supplier has offered to produce the fried vegetables for $25 per batch. How much will Lean save if it accepts the offer, assuming that fixed costs remain unchanged? a. $3.00 per batch. b. $4.00 per batch. c. $18.00 per batch. d. $13.00 per batch. 9) Karpentry Company is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $30 and Karpentry would sell it for $66. The cost to assemble the product is estimated at an additional $21 per unit and the company believes the market would support a price of $85 on the assembled unit. What decision should Karpentry make? a. Sell before assembly, the company will be better off by $1 per unit. b. Sell before assembly, the company will be better off by $2 per unit. c. Process further, the company will be better off by $29 per unit. d. Process further, the company will be better off by $14 per unit. 10) Renee Company has old, obsolete inventory on hand. Its scrap value is $16,000. The inventory could be sold for $40,000 if manufactured further at an additional cost of $12,000. Should Renee sell the inventory for $16,000 scrap value? or manufacture further and sell that inventory for $40,000? 11) A local science museum normally sells tickets to its museum for $5 each. Variable costs are $1.00 per visitor and fixed costs are $3,000. A local school group has approached the museum wishing to purchase 50 tickets at a reduced price of $2.00 each. If the school group's request is turned down, then the students will not visit the museum. Assuming the museum has sufficient capacity and that fixed costs remain unchanged, what is the change in net income if the special request was to be accepted? ACC 117 Spring 2021 Extra-Credit Quiz 4 12) The concepts "Sales Revenue per unit minus Variable Cost per unit = Contribution Margin" & "Contribution Margin minus Administrative/Selling Expenses = Net Income/ are regularly used by business managers to analyze their costs and determine ways to increase net income. However, in many cases, the sales price of a product is dictated by the market and companies have already cut their administrative/selling expenses to the bare bones, so the only way to increase net income is by reducing the "variable cost per unit" figure. Reducing variable costs can be done in several ways, most notably by using less expensive ingredients (and possibly decreasing the quality of the product) or by reducing the size of the container. An example of the latter is tuna fish; many years ago, a standard can of tuna fish was 7 ounces, but the size has been reduced to 6.5 ounces, 6 ounces, 5.5 ounces and down to the current size of 5 ounces - thus the manufacturers can charge the same price per can but make more profit. Another example is mass-market ground coffee (e.g. Folger's, Maxwell House, Chock Full o'Nuts), which used to be sold by the pound (16 ounces) but is now sold in 11-ounce or even 10.5 ounce containers (down from 13 ounces a few years ago). Please name three other common food products whose manufacturer has shrunk the size of the contents (or the container) as a way of increasing profits. For example, I can think of a nationally-known beverage available in most convenience stores and gas stations, which recently reduced its container size from 32 to 28 ounces by giving that container an hour-glass shape, while maintaining the same sales price. Good luck!