Question
30. Nissley Wedding Fantasy Corporation makes very elaborate wedding cakes to order. The owner of the company has provided the following data concerning the activity
30. Nissley Wedding Fantasy Corporation makes very elaborate wedding cakes to order. The owner of the company has provided the following data concerning the activity rates in its activity-based costing system:
Activity Cost Pools |
| Activity Rate | |
Size-related | $ | 1.23 | per guest |
Complexity-related | $ | 28.32 | per tier |
Order-related | $ | 74.82 | per order |
The measure of activity for the size-related activity cost pool is the number of planned guests at the wedding reception. The greater the number of guests, the larger the cake. The measure of complexity is the number of tiers in the cake. The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately.
Data concerning two recent orders appear below:
| Tijerina Wedding | Twersky Wedding | ||
Number of reception guests |
| 49 |
| 124 |
Number of tiers on the cake |
| 3 |
| 5 |
Cost of purchased decorations for cake | $ | 28.80 | $ | 54.74 |
Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down, what amount would the company have to charge for the Tijerina wedding cake to just break even?
Multiple Choice
$74.82
$248.85
$28.80
$294.12
31. Otool Inc. is considering using stocks of an old raw material in a special project. The special project would require all 160 kilograms of the raw material that are in stock and that originally cost the company $2,136 in total. If the company were to buy new supplies of this raw material on the open market, it would cost $8 per kilogram. However, the company has no other use for this raw material and would sell it at the discounted price of $7.05 per kilogram if it were not used in the special project. The sale of the raw material would involve delivery to the purchaser at a total cost of $85 for all 160 kilograms. What is the relevant cost of the 160 kilograms of the raw material when deciding whether to proceed with the special project?
Multiple Choice
$1,128
$1,043
$1,234
32. Schickel Inc. regularly uses material B39U and currently has in stock 464 liters of the material for which it paid $2,626 several weeks ago. If this were to be sold as is on the open market as surplus material, it would fetch $5.30 per liter. New stocks of the material can be purchased on the open market for $5.82 per liter, but it must be purchased in lots of 1,000 liters. You have been asked to determine the relevant cost of 650 liters of the material to be used in a job for a customer. The relevant cost of the 650 liters of material B39U is:
Multiple Choice
$5,820
$3,445
$3,503
$3,783
33. Part U16 is used by Mcvean Corporation to make one of its products. A total of 15,500 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity:
Per Unit
Direct materials $ 3.40
Direct labor $ 8.00
Variable manufacturing overhead $ 8.50
Supervisor's salary $ 3.90
Depreciation of special equipment $ 2.30
Allocated general overhead $ 7.50
An outside supplier has offered to make the part and sell it to the company for $26.70 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including the direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the part were purchased instead of produced internally. In addition, the space used to make part U16 could be used to make more of one of the company's other products, generating an additional segment margin of $27,500 per year for that product. The annual financial advantage (disadvantage) for the company as a result of buying part U16 from the outside supplier should be:
Multiple Choice
($17,450)
($70,150)
$27,500
($130,200)
34. Sardi Inc. is considering whether to continue to make a component or to buy it from an outside supplier. The company uses 13,500 of the components each year. The unit product cost of the component according to the company's cost accounting system is given as follows:
Direct materials $ 9.30
Direct labor 6.30
Variable manufacturing overhead 2.10
Fixed manufacturing overhead 4.10
Unit product cost $ 21.80
Assume that direct labor is a variable cost. Of the fixed manufacturing overhead, 40% is avoidable if the component were bought from the outside supplier. In addition, making the component uses 2 minutes on the machine that is the company's current constraint. If the component were bought, time would be freed up for use on another product that requires 4 minutes on this machine and that has a contribution margin of $5.70 per unit.
When deciding whether to make or buy the component, what cost of making the component should be compared to the price of buying the component? (Round your intermediate calculations to 2 decimal places.)
Multiple Choice
$24.65 per unit
$22.55 per unit
$19.34 per unit
$22.19 per unit
35. The management of Bonga Corporation is considering dropping product D74F. Data from the company's accounting system for this product for last year appear below:
Sales $ 922,000
Variable expenses $ 405,000
Fixed manufacturing expenses $ 336,000
Fixed selling and administrative expenses $ 243,000
All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $207,000 of the fixed manufacturing expenses and $118,000 of the fixed selling and administrative expenses are avoidable if product D74F is discontinued.
What would be the financial advantage (disadvantage) from dropping product D74F?
Multiple Choice
$192,000
$62,000
($62,000)
($192,000)
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