Question 51

Given:

	Net revenue	$400,000
	Average operating assets	$120,000
	Controllable margin	$30,000
	Minimum rate of return	14%

The return on investment for management performance evaluation is

Select one:

a. 25.0%

b. 7.5%

c. 11.0%

d. -6.5%

Question 52

The condensed income statement for a business for the past year is as follows:

	Product
	Wham	Blam
Sales	$ 300,000	$200,000
Less variable costs	180,000	165,000
Contribution margin	$ 120,000	$ 35,000
Less fixed costs	90,000	60,000
Income (loss) from operations	$ 30,000	$(25,000)

Management is considering the discontinuance of the manufacture and sale of Blam at the beginning of the current year. Sixty percent of Blam's fixed costs are allocated corporate costs which will be incurred even if Blam is discontinued. What is the amount of change in company net income for the current year that will result from the discontinuance of Blam?

Select one:

a. $11,000 decrease.

b. $25,000 increase.

c. $35,000 decrease.

d. $1,000 increase.

Question 53

A business received an offer from an exporter for 5,000 units of product at $8.50 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. Selling costs of $.70 per unit can be avoided on sales to the exporter. The following data are available on current domestic sales:

Domestic unit sales price:		$12.00
Variable manufacturing costs per unit:		$9.00
Fixed manufacturing costs per unit:		$1.00

What is the amount of income or loss from acceptance of the offer?

Select one:

a. $1,000 income.

b. $4,000 loss.

c. $2,500 loss.

d. $17,500 loss.

Question 54

A company is considering replacing old equipment with new equipment. Which of the following is NOT a relevant cost for incremental analysis?

Select one:

a. Depreciation taken on the old equipment

b. Disposal value of the old equipment.

c. Costs to retrain workers to operate the new equipment.

d. Cost of acquiring the new equipment.

Question 55

Product B is currently selling for $45 per pound and costs $30 per pound to produce. Alternatively, Product B can be processed further to produce Product C. Product C would sell for $58 per pound and would require an additional cost of $16 per pound to produce. If Product B is processed further and sold as Product C rather than being sold as Product B, the companys income would

Select one:

a. decrease by $3 per pound.

b. increase by $12 per pound.

c. increase by $13 per pound.

d. decrease by $16 per pound.

Question 56

An opportunity cost is

Select one:

a. the potential benefit from following an alternative course of action.

b. the cost of a special order option.

c. a variable cost.

d. a sunk cost.

Question 57

In a competitive market, target costing involves taking the:

Select one:

a. selling price and subtracting desired profit.

b. selling price and adding desired profit.

c. selling price and subtracting the budget standard cost.

d. budget standard cost and reducing it by 10%.

Question 58

The following per unit information is available for a new product of Scranton Company assuming 10,000 units are produced:

Desired ROI per unit		$18
Fixed manufacturing cost			$20
Fixed selling & administrative cost			15
Variable manufacturing cost			33
Variable selling & administrative cost			12
Total cost			$80

What is the per unit cost in cost-plus pricing using the variable cost definition?

Select one:

a. $53

b. $45

c. $80

d. $33

Question 59

The following per unit information is available for a new product of Scranton Company assuming 20,000 units are produced:

Desired ROI per unit		$18
Fixed manufacturing cost			$20
Fixed selling & administrative cost			15
Variable manufacturing cost			33
Variable selling & administrative cost			12
Total cost			$80

Using absorption cost as the definition of cost, what is the mark-up percentage?

Select one:

a. 117.8%

b. 22.5%

c. 40.0%

d. 197.0%

Question 60

Which of the following is the correct pairing of cost definition and its advantage?

Select one:

a. Variable cost is consistent with CVP analysis.

b. Absorption cost reflects all costs that must be covered in the long run.

c. Variable cost is consistent with GAAP.

d. Full cost provides information appropriate for pricing special orders (short-run decisions).