4 points

QUESTION 17

EFG Company is trying to decide whether to continue producing Part Z25 which is used to produce Product X. EFG's production cost per unit for Part Z25 is as follows:

Variable production cost $1.75

Fixed production cost $2.20

Total Cost $3.95

An outside supplier has offered to provide Part Z25 to EFG Company for $2.80 per unit. If EFG buys from the outside supplier, 10% of the fixed production cost will not have to be incurred. Also, EFG can use the idle production facilities to make $54,000 of contribution margin for a new product line. EFG uses 60,000 units of Part Z25 per year. What decision should be made and what is the total dollar advantage per year of this decision?

Decision	Advantage
Buy	$4200
Buy	$1800
Make	$4200
Make	$15,000

		Buy $1,800
		Make $15,000
		Make $4,200
		Buy $4,200

4 points

QUESTION 18

Betty's Blankets makes three baby blankets, the "Kitty" blanket, the "Puppy" blanket, and the "Baby" blanket. Demand far exceeds the company's production capacity measured in labor hours. Available per unit data for the three products are provided below:

	Kitty	Puppy	Baby
selling price	$30	$24	$9
Variable costs	(15)	(10)	(2)
Contribution margin	$15	$14	$7
Labor hours required	2.2	1.2	0.5

Betty's blankets has 1,000 labor hours available each quarter. Which product(s) would be the most beneficial to produce?

		Either Puppy or Baby
		Only Baby
		Only Puppy
		Only Kitty

4 points

QUESTION 19

Denton, Inc. manufactures Swiss cheese bread. In the production process, each slice of bread is randomly punched with five to seven holes. The bread holes can be sold for birdseed without any further processing. If processed further, the bread holes can be sold as croutons. The following information is available for next month's production and sales:

Cost of bread $40,000

Sales Value of swiss cheese bread $88,000

Sales value of birdseed $12,000

Sales value of croutons $22,000

Cost of processing bread into croutons $8,000

By how much will Denton's profit increase or decrease next month if croutons are sold instead of birdseed?

		$26,000 decrease
		$10,000 increase
		$2,000 increase
		$14,000 increase

4 points

QUESTION 20

Bingo Company manufactures and sells a singing Bingo dog toy. Results for last year are as follows:

Sales (10,000 Units at $15 each $150,000

Less expenses:

Variable production costs 90,000

Variable selling costs 22,500

Salary of foreman 19000

Traceable fixed costs 17500

fixed manufacturing overhead costs 16,000

Total Expenses $165,000

Net operating loss ($15,000)

Bingo is trying to decide whether to discontinue the dog toy. Dropping the product would have no effect on the fixed manufacturing overhead, but would increase the contribution margin of other product lines by $1,500. What will the change in operating income be if the company drops the Bingo dog toy?

		$15,000 decrease
		$500 increase
		$14,000 increase
		$15,000 increase