1.A customer has requested that LCorporation fill a special order for 2,800 units of product R35 for $32 a unit. While the product would be modified slightly for the special order, product R35's normal unit product cost is $17.70:

Direct materials $5.20

Direct labor3.00

Variable manufacturing overhead2.30

Fixed manufacturing overhead7.20

Unit product cost$17.70

Assume that direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like modifications made to product R35 that would increase the variable costs by $1.30 per unit and that would require an investment of $16,000 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order. The annual financial advantage (disadvantage) for the company as a result of accepting this special order should be:

• ($15,700)
• ($2,600)
• $16,200
• $40,560

2.Pear Corporation is considering Alternative A and Alternative B. Costs associated with the alternatives are listed below:

Alternative A Alternative B

Materials costs $40,000 $56,000

Processing costs $37,000 $37,000

Equipment rental $13,000 $13,000

Occupancy costs $15,000 $22,000

Are the materials costs and processing costs relevant in the choice between alternatives A and B?

Multiple Choice

• Only processing costs are relevant
• Neither materials costs nor processing costs are relevant
• Both materials costs and processing costs are relevant
• Only materials costs are relevant

3.The management of Austin Corporation is considering dropping product A1B2. Data from the company's budget for the upcoming year appear below:

Sales$930,000

Variable expenses$378,000

Fixed manufacturing expenses$360,000

Fixed selling and administrative expenses$240,000

In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $213,000 of the fixed manufacturing expenses and $174,000 of the fixed selling and administrative expenses are avoidable if product A1B2is discontinued. The financial advantage (disadvantage) for the company of eliminating this product for the upcoming year would be:

Multiple Choice

• $48,000
• $(165,000)
• $165,000
• $(48,000)

4.Which of the following would be relevant in the make or buy decision?

Direct materials Depreciation on equipment with no resale value

A) Yes Yes

B) Yes No

C) No Yes

D) No No

Multiple Choice

• Choice D
• Choice C
• Choice B
• Choice A

5.LCorporation produces and sells 16,000 units of Product X each month. The selling price of Product X is $30 per unit, and variable expenses are $24 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $70,000 of the $110,000 in monthly fixed expenses charged to Product X would not be avoidable even if the product was discontinued. If Product X is discontinued, the annual financial advantage (disadvantage) for the company of eliminating this product should be:

Multiple Choice

• $14,000
• ($56,000)
• ($54,000)
• $54,000

6.Part E14is used by MCorporation to make one of its products. A total of 23,000 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity:

Per Unit

Direct materials $4.90

Direct labor $9.50

Variable manufacturing overhead $10.00

Supervisor's salary $5.40

Depreciation of special equipment $3.80

Allocated general overhead $9.00

An outside supplier has offered to make the part and sell it to the company for $32.70 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including the direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the part were purchased instead of produced internally. In addition, the space used to make part E14could be used to make more of one of the company's other products, generating an additional segment margin of $35,000 per year for that product. The annual financial advantage (disadvantage) for the company as a result of buying part E14from the outside supplier should be:

Multiple Choice

• ($227,700)
• ($144,400)
• $(31,700)
• $35,000

7.S Corporation makes 41,000 motors to be used in the production of its sewing machines. The average cost per motor at this level of activity is:

Direct materials$10.00

Direct labor$9.00

Variable manufacturing overhead$3.70

Fixed manufacturing overhead$4.65

An outside supplier recently began producing a comparable motor that could be used in the sewing machine. The price offered to SCorporation for this motor is $25.45. If SCorporation decides not to make the motors, there would be no other use for the production facilities and none of the fixed manufacturing overhead cost could be avoided. Direct labor is a variable cost in this company. The annual financial advantage (disadvantage) for the company as a result of making the motors rather than buying them from the outside supplier would be:

Multiple Choice

• $264,450
• ($77,900)
• $190,650
• $112,750

8.ECorporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 47,000 units per month is as follows:

Per UnitDirect

materials $46.10

Direct labor $8.80

Variable manufacturing overhead $1.80

Fixed manufacturing overhead $18.70

Variable selling & administrative expense $3.20

Fixed selling & administrative expense $15.00

The normal selling price of the product is $100.10 per unit. An order has been received from an overseas customer for 2,700 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.90 less per unit on this order than on normal sales.

Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $83.40 per unit. The monthly financial advantage (disadvantage) for the company as a result of accepting this special order should be:

Multiple Choice

• ($43,000)
• $18,090
• ($27,540)
• $68,580