1. Which of the followin g best describes a situation where a customer's special order should be...
Question:
| 1. | Which of the following best describes a situation where a customer's special order should be accepted: | |
| A) | its revenue exceeds allocated fixed costs, regardless of the variable costs associated with the order. | |
| B) | excess capacity exists and the revenue exceeds all variable costs associated with the order. | |
| C) | excess capacity exists and the revenue exceeds allocated fixed costs. | |
| D) | the revenue slightly exceeds total costs, and there is no available capacity. | |
| E) | the revenue slightly exceeds variable costs, and there is no available capacity. |
| 2. | Thrift Manufacturing has at most 54,000 labor hours available for producing Cheap and Cheaper. Consider the following information:
If Thrift follows proper managerial accounting practices to maximize the company's total contribution margin, which of the following production schedules should the company set?
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| 3. | Walbash, Inc. is studying whether to outsource its accounting activities. Salaried professionals who earn a total of $390,000 would be terminated. In contrast, administrative assistants who earn a total of $120,000 would be transferred elsewhere in the organization (Assume no hiring or layoffs occur as a result of the transfer of the administrative assistants). Miscellaneous departmental overhead (e.g., supplies, copy charges, long distance) is expected to decrease by $30,000, and $25,000 of corporate overhead, previously allocated to Accounting, would be allocated to other departments. If Walbash can buy the accounting services locally for $410,000, how much would the company benefit by outsourcing? | |
| A) | $10,000. | |
| B) | $35,000. | |
| C) | $135,000. | |
| D) | $155,000. | |
| E) | None, as it would be cheaper to keep the department open. |
Use the following to answer question 4:
Grant, Inc. manufactures two products: Cassette Players and Compact Disc Players. The results of operations for 2005 follow.
Fixed manufacturing costs included in cost of goods sold amount to $3 per unit for the cassette players and $20 per unit for the compact disc players. Variable selling expenses are $4 per unit for the cassette players and $20 per unit for the compact disc players; remaining selling expenses amounts are fixed. Total fixed costs for Grant, Inc. are $184,000.
| 4. | Grant wants to drop the line of cassette players. If the line is dropped, the total fixed costs would fall by 10% because there is no alternative use of the facilities. What would be the impact on operating income if the cassette players are discontinued? | |
| A) | $0. | |
| B) | $10,400 increase. | |
| C) | $20,000 increase. | |
| D) | $31,600 decrease. | |
| E) | $114,300 decrease.
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| 5. | Bedrow Company, a manufacturer of snowmobiles, is operating at 70% of plant capacity. Bedrows plant manager is considering making the headlights, now being purchased from outside supplier, for $11 each. The Bedrow plant has enough idle equipment that could be used to manufacture the headlights. The design engineer estimates that each headlight requires $4 of direct materials, $3 of direct labor, and $6 of manufacturing overhead. Forty percent of the manufacturing overhead is a fixed cost that would be unaffected by this decision. A decision by Bedrow Company to manufacture the headlights should result in a net gain (loss) for each headlight of: | |
| A) | $(2.00). | |
| B) | $1.60. | |
| C) | $0.40. | |
| D) | $2.80. |
| 6. | Zianpore Corporation has $500,000 of joint processing costs and is studying whether to process X and Y beyond the split-off point. Information about X and Y follows.
If Zianpore desires to maximize total company income, what should the firm do with regard to Products X and Y?
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Use the following to answer question 7:
Gross Company produces three products with the following costs and selling prices:
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| A | B | C |
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| Selling price per unit | $40 | $30 | $35 |
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| Variable costs per unit | $24 | $16 | $20 |
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| Contribution margin per unit | $16 | $14 | $15 |
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| Direct labor hours per unit | 4 | 2 | 3 |
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| Machine hours per unit | 5 | 7 | 4 |
| 7. | If Gross has a limit of 20,000 direct labor hours but no limit on units sold or machine hours, then the three products should be produced in which of the following prioritized orders: | |
| A) | A,B,C. | |
| B) | B,C,A. | |
| C) | A,C,B. | |
| D) | C,B,A. |
| 8. | The Fog Department at the Black Bottom Retail Store is being considered for closure (i.e., shut down). The following information relates to store activity:
If 70% of the fixed operating costs are avoidable by closing the department, should the Fog Department be closed? | |
| A) | Yes, Black Bottom would be better off by $23,000. | |
| B) | Yes, Black Bottom would be better off by $50,000. | |
| C) | No, Black Bottom would be worse off by $13,000. | |
| D) | No, Black Bottom would be worse off by $40,000. | |
| E) | None of the above. |
Expert Answer:
