| E.There is not enough information to answer this question. 3. Exhibit 7-4 The following segmented annual income statement is for Paper Products, Inc. Product Lines Plain Lined Color Total Sales revenue $25,000 $100,000 $125,000 $250,000 Variable costs 15,000 50,000 85,000 150,000 Contribution margin $10,000 $50,000 $ 40,000 $100,000 Direct fixed costs 4,000 6,000 9,000 19,000 Allocated fixed costs ? ? ? 45,000 Profit (loss) $ ? $ ? $ ? $ ? Refer to Exhibit 7-4. If allocated fixed costs are based on sales revenue for each product line as a pro-portion of total sales revenue, what is the amount of allocated fixed costs for Color? | A.$18,000 | | | B.$22,500 | | | C.$15,000 | | | D.$31,000 | | | E.None of the answer choices is correct. 4. Exhibit 7-2 Jake Company is considering a special order for 5,000 units at a price of $60 per unit. Jake's product normally sells for $84 per unit and has variable manufacturing costs of $45 per unit and variable selling costs of $9 per unit. Fixed manufacturing costs are $150,000 and fixed selling and administrative costs are $300,000. Jake has capacity to produce 30,000 units and is currently producing 20,000 units. If the order is accepted, , Jake will incur legal fees of $7,500 in connection with the order, but there will be no variable selling costs on the special order. Refer to Exhibit 7-2. What amount of additional profit or loss will be incurred if the order is accepted? | A.$300,000 | | | B.$67,500 | | | C.($127,500) | | | D.($22,500) | | | E.None of the answer choices is correct. 5. 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. 6. 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. 7. 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. 8. 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. 9. 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. 10. 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. 11. 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. 12. 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. | | | | | | | | | | |
