2.

Clemente Inc. incurs the following costs to produce 10,000 units of a subcomponent:

Direct materials	$8,400
Direct labor	11,250
Variable overhead	12,600
Fixed overhead	16,200

An outside supplier has offered to sell Clemente the subcomponent for $2.85 a unit.

If Clemente accepts the offer, it could use the production capacity to produce another product that would generate additional income of $3,600. The increase (decrease) in net income from accepting the offer would be

A)

$150.

B)

$7,350.

C)

$(150).

D)

$(3,600).

3.	Janssen Company has old inventory on hand that cost $24,000. Its scrap value is $32,000. The inventory could be sold for $80,000 if manufactured further at an additional cost of $24,000. What should Janssen do?
	A)	Sell the inventory for $32,000 scrap value
	B)	Dispose of the inventory to avoid any further decline in value
	C)	Hold the inventory at its $24,000 cost
	D)	Manufacture further and sell it for $80,000.

4.

Paul Bunyon Lumber Co. produces several products that can be sold at the split-off point or processed further and then sold. The following results are from a recent period:

	Sales Value		Additional		Sales Value after
Product	at Split-off		Variable Costs		Further Processing
Green lumber	$159,600	$24,000		$178,000
Rough lumber	124,000	28,200		173,600
Sawdust	102,000	19,600		130,000

Which products should be processed further?

A)

Green lumber and rough lumber

B)

Green lumber and sawdust

C)

Rough lumber and sawdust

D)

All three products

5.

Chung Inc. is considering the replacement of a piece of equipment with a newer model. The following data has been collected:

	Old Equipment		New Equipment
Purchase price	$225,000	$375,000
Accumulated depreciation	90,000	- 0 -
Annual operating costs	300,000	240,000

If the old equipment is replaced now, it can be sold for $60,000. Both the old equipment's remaining useful life and the new equipment's useful life is 5 years.

The net advantage (disadvantage) of replacing the old equipment with the new equipment is

A)

$60,000

B)

$(15,000)

C)

$(75,000)

D)

$90,000

6.

Custom Shoes Co. has gathered the following information concerning one model of shoe:

Variable manufacturing costs	$40,000
Variable selling and administrative costs	$20,000
Fixed manufacturing costs	$160,000
Fixed selling and administrative costs	$120,000
Investment	$1,700,000
ROI	30%
Planned production and sales	5,000 pairs

What is the target selling price per pair of shoes?

A)

$142

B)

$170

C)

$114

D)

$158