24. The cost of product liability claims (warranties) is an example of a(n):

A. appraisal cost

B. external failure cost

C. internal failure cost

D. prevention cost

25. A manager should always reject a special order if:

A. there is available excess capacity

B. the special order price is less than the variable costs of the order.

C. the special order price is less than the regular sales price.

D. the special order will require variable non-manufacturing expenses.

B

26. Clear Sky Sailmakers manufactures sails for sailboats. The company has the capacity to produce 15,000 sails per year, but is currently producing and selling 10,000 sails per year. The following information relates to current production:

If a special sales order is accepted for 3,000 sails at a price of $215, fixed costs remain unchanged, and no variable marketing and administrative costs will be incurred for this order, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)

A. Increase by $50,000

B. Increase by $1,125,000

C. Increase by $150,000

D. Decrease by $50,000

27. Spahr Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of $5,000 units, are as follows:

Erickson Company has offered to sell 5,000 units of the same part to Spahr Company for $11 per unit. Assuming the company has no other use for its facilities, what should Spahr Company do?

A. Make the part and save $5 per unit

B. Make the part and save $2 per unit

C. Buy from Erickson and save $1 per unit

D. Make the part and save $7 per unit