| E.None of the answer choices is correct. 2. Exhibit 7-1 Talmont Products has dropped the price per unit of its smart phone product from $1,060 to $500. There are some units in work-in-process inventory that have costs of $600 per unit associated with them. Talmont could sell these units in their current state for $400. It will cost Talmont $40 to complete these units so that they can be sold for $500 each. Refer to Exhibit 7-1. When the incremental revenues and costs are analyzed, the company is better off by: | A.$500 per unit if they complete the units. | | | B.$40 per unit if they sell the units in their current state. | | | C.$200 per unit if they sell the units in their current state. | | | D.$60 per unit if they complete the units. | | | E.None of the answer choices is correct. 3. Exhibit 7-7 Fishing Products Company produces three types of fishing poles: Light, Medium, and Heavy. The poles are produced in separate departments and sent to the quality testing department before being shipped. A labor-hour bottleneck has been identified in the quality testing department due to the high skill requirements of the job. Fishing Products would like to optimize its use of labor hours by producing the two most profitable fishing poles. Information for each pole follows: Quality Testing Labor-hours Price Variable Cost Light 2 $ 300 $170 Medium 3 500 200 Heavy 5 1,200 380 Refer to Exhibit 7-7. What is the contribution margin per unit of constrained resource for the Heavy product? | A.$1,640 | | | B.$82 | | | C.$100 | | | D.$164 | | E.None of the answer choices is correct. 4. Exhibit 7-9 Doughnuts Company uses flour to produce two joint products, Premium and Deluxe. When processed, each pound of flour yields 8 units of Premium and 12 units of Deluxe. Premium doughnuts sell for $1.00 per unit and Deluxe sell for $2.00 per unit. The total cost to process a 10-pound batch of flour is $12.00. Refer to Exhibit 7-9. If the sales value method is used to allocate the $12 in joint costs, how much will be allocated to Deluxe doughnuts? | A.$12 | | | B.$3 | | | C.$10 | | | D.$9 | | | E.None of the answer choices is correct. 5. Davis Company has $20 per unit in variable costs and $800,000 per year in fixed costs. Demand is estimated to be 400,000 units per year. What is the desired price per unit if a markup of 30% on total cost is used to determine the price? | A.$26.00 | | | B.$37.40 | | | C.$28.60 | | | D.$34.00 | | | E.None of the answer choices is correct. | | 6. Exhibit 7-6 Roseville, Inc. produces two types of gaming systems: Starter and Advanced. The gaming products are produced in separate departments and sent to the quality testing department before being packaged and shipped. A labor-hour bottleneck has been identified in the quality testing department due to the high skill requirements of the job. Roseville, Inc. has compiled the following data in order to optimize its use of labor hours for producing the most profitable product. Quality Testing Contribution Labor-hours Margin Starter 0.80 $200 Advanced 0.50 150 Refer to Exhibit 7-6. What is the contribution margin per quality testing labor-hour for the Starter product? | A.$160 | | | B.$40 | | | C.$269 | | | D.$250 | | | E.None of the answer choices is correct. 7. Branford Company is bidding on a custom yacht. The company typically charges 30 percent above cost and estimates the yacht will cost $900,000 to build. What is the price bid that Branford should submit? | A.$900,000 | | | B.$1,170,000 | | | C.$1,530,000 | | | D.$927,000 | | | E.None of the answer choices is correct. 8. Exhibit 7-5 Accounting Services, Inc. has two customers. Customer X generates $600,000 in income after direct fixed costs are deducted, and Customer Z generates $580,000 in income after direct fixed costs are deducted. Allocated fixed costs total $1,000,000 and are assigned 40 percent to Customer X and 60 percent to Customer Z. Total allocated fixed costs remain the same regardless of how these costs are assigned to customers. Refer to Exhibit 7-5. Based on this information, which of the following best describes the course of action preferred by management regarding this customer decision? | A.Drop Customer Z because this customer generates a net loss. | | | B.Drop Customer Z because this customer generates less income after direct fixed costs than Customer X. | | | C.Keep Customer Z because eliminating this company would have the effect of increasing com-pany profit by $580,000. | | | D.Keep Customer Z because eliminating this company would have the effect of decreasing company profit by $580,000. | | | E.None of the answer choices is correct. 9. Exhibit 7-3 Cap Incorporated currently manufactures hats. Management is interested in outsourcing production to a reputable manufacturing company that can supply the hats for $5 per unit. Cap produces 20,000 hats each year. Variable production costs are $2 and annual fixed costs are $75,000. If production is outsourced, all variable costs and 60 percent of annual fixed costs will be eliminated. Refer to Exhibit 7-3. If the hats are made internally, what are the total production costs? | A.$25,000 | | | B.$100,000 | | | C.$115,000 | | | D.$175,000 | | | E.None of the answer choices is correct. 10. All of the following are steps of target costing except: | A.maximizing the contribution margin per unit of constrained resource. | | | B.engineering the product to achieve the target cost. | | | C.designing a product that provides the features and price demanded by customers. | | | D.deriving the target cost by subtracting the desired profit. | | | E.None of the answer choices is correct. | | | | | | | |
