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Granfield Company has a piece of manufacturing equipment with a book value of $43,000 and a remaining useful life of four years. At the end
Granfield Company has a piece of manufacturing equipment with a book value of $43,000 and a remaining useful life of four years. At the end of the four years the equipment will have a zero salvage value. The market value of the equipment is currently $22,600. Granfield can purchase a new machine for $126,000 and receive $22,600 in return for trading in its old machine. The new machine will reduce variable manufacturing costs by $19,600 per year over the four-year life of the new machine. The total increase or decrease in net income by replacing the current machine with the new machine (ignoring the time value of money) is: Multiple Choice 0 $20,400 decrease 0 $25,000 decrease 0 $25,000 increase 0 $78,400 decrease 0 $54,100 increase Benjamin Company had the following results of operations for the past year: $ 162,400 Sales (16,000 units at $10.15) Direct materials and direct labor Overhead (20% variable) Selling and administrative expenses (all fixed) Operating income $98,400 18,400 32,300 (149,100) 13,300 $ A foreign company (whose sales will not affect Benjamin's market) offers to buy 4,300 units at $7.83 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $630 and selling and administrative costs by $330. Assuming Benjamin has excess capacity and accepts the offer, its profits will: Multiple Choice O Increase by $5,275. O Increase by $7,224. O Decease by $7,224. O Increase by $33,669. O Increase by $6,235. Factor Co. can produce a unit of product for the following costs: Direct material Direct labor Overhead Total costs per unit $ 8.30 24.30 41.50 $ 74.10 An outside supplier offers to provide Factor with all the units it needs at $47.20 per unit. If Factor buys from the supplier, the company will still incur 60% of its overhead. Factor should choose to: Multiple Choice 1 0 Buy since the relevant cost to make it is $32.60. 0 Buy since the relevant cost to make it is $57.50. 0 Buy since the relevant cost to make it is $49.20. 0 Make since the relevant cost to make it is $32.60. 0 Make since the relevant cost to make it is $49.20. Ahngram Corp. has 1,000 defective units of a product that cost $3.10 per unit in direct costs and $6.60 per unit in indirect cost when produced last year. The units can be sold as scrap for $4.10 per unit or reworked at an additional cost of $2.60 and sold at full price of $12.30. The incremental net income (loss) from the choice of reworking the units would be: Multiple Choice o O so. o ($2,600). o $9,700. o $4,100. o $2,600. Lattimer Company had the following results of operations for the past year: $ 186,000 Sales (15,000 units at $12.40) Variable manufacturing costs Fixed manufacturing costs Selling and administrative expenses (all fixed) Operating income $103,500 27,000 42,000 (172,500) $ 13,500 A foreign company whose sales will not affect Lattimer's market offers to buy 5,800 units at $8.30 per unit. In addition to existing costs, selling these units would add a $0.33 selling cost for export fees. Lattimer's annual production capacity is 25,000 units. If Lattimer accepts this additional business, the special order will yield a: Multiple Choice O $4,234 loss. O $8,120 profit. O $2,320 loss. O $6,206 profit. O $10,034 loss. Markson Company had the following results of operations for the past year: $ 156,000 Sales (8,000 units at $19.50) Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative expenses Fixed selling and administrative expenses Operating income $ 84,000 14,500 10,000 19,500 (128,000) $ 28,000 A foreign company whose sales will not affect Markson's market offers to buy 2,000 units at $13.25 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $1,550 for the purchase of special tools. Markson's annual productive capacity is 12,000 units. If Markson accepts this additional business, its profits will: Multiple Choice 0 Increase by $3,000. 0 Decrease by $1,550. 0 Decrease by $5,500. 0 Decrease by $4,550. 0 Increase by $1,450
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