1. The condensed income statement of Fletcher Inc. for the past year is as follows: Product G Total Sales $300,000 $210,000 $340,000 $850,000 Costs: Variable costs $180,000 $180,000 $220,000 $590,000 Fixed costs 50,000 50,000 40.000 140.000 Total costs $230,000 $230,000 $260.000 $730.000 Income (loss) $ 70,000 $(20,000) $ 80,000 $120,000 Management is considering the discontinuance of the manufacture and sale of Product G at the beginning of the current year. The discontinuance would have no effect on the total fixed costs and expenses or on the sales of Product F and Product H. What is the amount of change in net income for the current year that will result from the discontinuance of Product G? a. $20,000 increase b. $30,000 increase c. $20,000 decrease d. $30,000 decrease 2. Sage Company is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for $15 per unit. The unit cost for the business to make the part is $20 including fixed costs and $11 excluding fixed costs. If 30,000 units of the part are normally purchased during the year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease from making the part rather than purchasing it? a. $150,000 cost increase b. $120,000 cost decrease c. $150,000 cost increase d. $120,000 cost increase 3. Grace Co. can further process Product B to produce Product C. Product B is currently selling for $60 per pound and costs $38 per pound to produce. Product C would sell for $95 per pound and would require an additional cost of $13 per pound to produce. What is the differential revenue of producing and selling Product C? a. $35 per pound b. $38 per pound c. $95 per pound d. S60 per pound 4. Delaney Company is considering replacing equipment that originally cost $600,000 and that has $420,000 accumulated depreciation to date. A new machine will cost $790,000, and the old equipment can be sold for $8,000. What is the sunk cost in this situation? a. $172,000 b. $180,000 c. $188,000 d. $290,000 5. Farris Company is considering a cash outlay of $500,000 for the purchase of land, which it could lease out for $40,000 per year. If alternative investments that yield a 15% return are available, the opportunity cost of the purchase of the land is a. $75,000 b. $40,000 c. $44,000 d. $7,500 6. Sparrow Co. is currently operating at 80% of capacity and is currently purchasing a part used in its manufacturing operations for $8.00 a unit. The unit cost for Sparrow Co. to make the part is $9.00, which includes $0.60 of fixed costs. If 4,000 units of the part are normally purchased each year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease for making the part rather than purchasing it? a. $12.000 decrease b. $4,000 increase c. $20,000 decrease d. $1,600 increase 7. Starling Co. is considering disposing of a machine with a book value of $12,500 and estimated remaining life of five years. The old machine can be sold for $1,500. A new high-speed machine can be purchased at a cost of $25,000. It will have a useful life of five years and no residual value. It is estimated that the annual variable manufacturing costs will be reduced from $26,000 to $23,500 if the new machine is purchased. The differential effect on income for the new machine for the entire five years is an) a. decrease of $11,000 b. decrease of $15,000 c. increase of $11,000 d. increase of $15,000 Use this information for Falcon Co. to answer the questions that follow. Falcon Co. produces a single product. Its normal selling price is $30 per unit. The variable costs are $19 per unit. Fixed costs are $25,000 for a normal production run of 5,000 units per month. Falcon received a request for a special order that would not interfere with normal sales. The order was for 1,500 units with a special price of $20 per unit. Falcon has the capacity to handle the special order, and for this order, a variable selling cost of $1 per unit would be eliminated. 8. If the order is accepted, what would be the impact on net income? a. decrease of $750 b. decrease of $4,500 c. increase of $3,000 d. increase of $1,500 9. Should the special order be accepted? a. The answer cannot be determined from the data given. b. yes C. no d. There would be no difference in accepting or rejecting the special order. Mallard Corporation uses the product cost concept of product pricing. Below is the cost information for the production and sale of 45,000 units of its sole product. Mallard desires a profit equal to a 12% rate of return on invested assets of $800,000. Fixed factory overhead cost Fixed selling and administrative costs Variable direct materials cost per unit Variable direct labor cost per unit Variable factory overhead cost per unit Variable selling and administrative cost per unit $82,000 45,000 5.50 7.65 2.25 0.90 10. The markup percentage on product cost for the company's product is a. 23.4% b. 10.98% c. 26.1% d. 18% 11. The unit selling price for the company's product is a. $19.35 b. $15.75 c. $22.05 d. $21.25 Use this information for Flyer Company to answer the questions that follow. Flyer Company sells a product in a competitive marketplace. Market analysis indicates that its product would probably sell at $48 per unit. Flyer's management desires a 12.5% profit margin on sales. Its current full cost for the product is $44 per unit. 12. In order to meet the new target cost, how much will it have to cut costs per unit, if any? a. $1 b. $3 c. $2 d. So 13. What is the target cost of the company's product? a. $44 b. $42 c. $43 d. $40 14. If the company cannot cut costs any lower than they already are, what would the profit margin on sales be to meet the market selling price? a. 9.3% 6.7.3% c. 10.3% d. 8.3% 15. Peyton Company manufactures Phone X and Phone Y. Peyton can sell all it can make of either. Based on the following data, assuming the number of hours is a constraint, which statement is true? Sales price Variable cost X $48 38 Y $44 28 8 hours Time needed to process 5 hours a. X is more profitable than Y. b. Y is more profitable than X. c. Neither X nor Y is profitable. d. X and Y are equally profitable