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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

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

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