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:

	Cheap	Cheaper
Required labor time per unit (hours)	2	3
Maximum demand (units)	12,000	16,000
Contribution margin per unit	$10.00	$12.00
Contribution margin per labor hour	$5.00	$4.00

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?

Cheap

Cheaper

A)

0 units

16,000 units

B)

3,000 units

16,000 units

C)

12,000 units

0 units

D)

12,000 units

10,000 units

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.
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?

Product X

Product Y

A)

Sell at split-off

Sell at split-off

B)

Sell at split-off

Process beyond split-off

C)

Process beyond split-off

Sell at split-off

D)

Process beyond split-off

Process beyond split-off

Use the following to answer question 7:

Gross Company produces three products with the following costs and selling prices:

		Product
		A	B	C
	Selling price per unit	$40	$30	$35
	Variable costs per unit	$24	$16	$20
	Contribution margin per unit	$16	$14	$15
	Direct labor hours per unit	4	2	3
	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.