Q1:

Sage Company is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for $16.00 per unit. The unit cost for the business to make the part is $20.00, including fixed costs, and $10.00, excluding fixed costs. If 37,554 units of the part are normally purchased during the year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease from making the part rather than purchasing it?

$150,216 cost increase

$225,324 cost increase

$225,324 cost decrease

$600,864 cost decrease

Q2:

Starling Co. is considering disposing of a machine with a book value of $24,700 and estimated remaining life of five years. The old machine can be sold for $5,300. A new high-speed machine can be purchased at a cost of 71,200. It will have a useful life of five years and no residual value. It is estimated that the annual variable manufacturing costs will be reduced from $23,100 to $20,200 if the new machine is purchased. The differential effect on income for the new machine for the entire five years is

increase of $51,400

decrease of $51,400

decrease of $66,820

increase of $66,820

Q3:

The Swan Company produces its product at a total cost of $43 per unit. Of this amount, $8 per unit is selling and administrative costs. The total variable cost is $30 per unit and the desired profit is $20 per unit. Determine the markup percentage on product cost.

a.110%

b.80%

c.46.5%

d.70%