Top of Form

X Company currently buys a part from a supplier for $14.84 per unit but is considering making the part itself next year. This year, they purchased 3,200 units of this part; next year, they will need 3,700 units. Estimated costs to make the part next year are:

	Per-Unit	Total
Direct materials	$3.33	$10,656
Direct labor	4.36	13,952
Variable overhead	4.20	13,440
Fixed overhead	4.40	14,080
Total	$16.29	$52,128

Of the estimated fixed overhead, $8,307 would be additional fixed overhead costs; the remainder would be common costs allocated to the part. X Company currently receives $2,800 a year by renting unused factory space, but it will have to use this space to make the part.

If X Company continues to buy the part instead of making it, it will save

A: $91

B: $133

C: $192

D: $279

E: $404

F: $586

X Company is considering buying a part next year that they currently make. This year's per-unit production costs for 98,000 units of this part were:

Materials	$5.19
Direct labor	5.68
Variable overhead	3.42
Fixed overhead	1.48
Total	$15.77

A company has offered to supply this part for $15.19 per unit. If X Company buys the part, $87,024 of the total fixed overhead is unavoidable, and there is no alternative use of the resources that will become idle. Production next year is expected to be 101,250 units.

If X Company continues to make the part instead of buying it, it will save

A: $24,187

B: $28,298

C: $33,109

D: $38,738

E: $45,323

F: $53,028

Top of Form

X Company no longer has the space necessary to produce all of its parts. A company has offered to supply one of X Company's parts for $27.03 per unit. This year, production was 11,000 units; next year, production is expected to be 14,700 units. Total production costs for the part this year were:

Materials	$122,980
Direct labor	105,710
Variable overhead	61,050
Fixed overhead	29,590
Total	$319,330

$6,806 of X Company's fixed overhead can be avoided if it buys the part. In addition, if X Company buys the part, it will be able to rent some equipment that will no longer be needed, to a company for $2,750.

X Company is uncertain about its 14,700 unit production estimate for next year. At what level of production would X Company be indifferent between making and buying the part next year?

A: 5,887

B: 7,829

C: 10,413

D: 13,849

E: 18,419

F: 24,497

Tries 0/99

Bottom of Form

Near the end of 2020, X Company had produced and sold 60,300 units of its only product. Costs for these units were:

	Total	Per-Unit
Direct materials	$132,660	$2.20
Direct labor	78,390	1.30
Variable overhead	150,750	2.50
Fixed overhead	126,630	2.10
Variable selling and administration	63,918	1.06
Fixed selling and administration	72,360	1.20
Total	$624,708	$10.36

Just before the year ended, a company offered to buy 4,650 units for $13.36 each. X Company had the capacity to produce the additional 4,650 units, but because the special order product was slightly different than the regular product, direct material costs were expected to increase by $0.10 per unit, and some special equipment would have to be rented for a total of $16,000.

4. What would profit have been on the special order?

A: $9,647

B: $12,830

C: $17,064

D: $22,695

E: $30,184

F: $40,145

Tries 0/99

5. Assume that if X Company had accepted the special order, it would have had to lower the selling price of its regular product to prevent the loss of regular customers. The price of its regular product is normally set at 20% above total manufacturing cost per unit, but it would have to reduce it to $9.27 per unit. The effect of lowering the selling price would have been to decrease company profits by

A: $27,135

B: $33,919

C: $42,398

D: $52,998

E: $66,248

F: $82,809

The following are the budgeted profit functions for X Company's two products, A and B, for next year:

Product A: P = .52 (R) - $59,510

Product B: P = .44 (R) - $27,520

where R is revenue. Budgeted revenue for the two products are $94,000 and $90,000, respectively. Unavoidable fixed costs for the two products are $22,614 and $12,384, respectively.

The company is considering dropping Product A because it appears to be losing money. If it does, the resulting freed-up resources can be used to increase revenue from sales of Product B by $34,300, but that will require $2,000 of additional fixed costs.

If X Company drops A and increases revenue from B, firm profits will change by

A: $981

B: $1,108

C: $1,252

D: $1,415

E: $1,599

F: $1,807

One of X Company's production machines was badly damaged recently. Unfortunately, the machine was purchased just three years earlier for $50,000. The company must either repair the machine or purchase a new machine. The estimated cost of repairing the machine is $20,000, after which operating costs will be $60,000 a year. It will also require a maintenance check in the second year that is estimated to cost $2,000.

A new machine will cost $82,000, but it will be more efficient than the repaired machine, with annual operating cost savings of $9,000.

Both the repaired machine and the new machine will last for five years, at which time the repaired one would be worthless, and new one would be worth $6,500. If it is not repaired, the damaged machine can be sold immediately for $5,000.

Assuming a discount rate of 4%, what is the net present value of buying the new machine instead of repairing the damaged machine? [Use the present value tables in the Coursepack.]

A: $6,717

B: $9,739

C: $14,122

D: $20,476

E: $29,691

F: $43,051

X Company is considering producing and selling a new product. After conducting a market research study that cost $4,400, company estimates are that sales of the product will be 8,500 units in each of the next four years, contribution margin per unit will be $5.90, and annual fixed costs will be $17,866.

In order to produce the new product, additional equipment would have to be purchased, costing $120,000, with no salvage value at the end of four years.

What is the internal rate of return of producing and selling this new product? [Use the present value tables in the Coursepack.]

A: 0.03

B: 0.04

C: 0.05

D: 0.06

E: 0.07

F: 0.08

X Company must purchase a new delivery truck and is using the payback method to evaluate two possible trucks. Truck X costs $32,000; Truck Y costs $40,000. The useful life of both is seven years, with the following estimated operating cash flows:

Year	Truck X	Truck Y
1	$-6,000	$-7,000
2	-8,000	-4,000
3	-8,000	-3,000
4	-8,000	-3,000
5	-6,000	-3,000
6	-5,000	-2,000
7	-4,000	-2,000

If X Company chooses Truck Y instead of Truck X, what is the payback period (in years)?

A: 2

B: 3

C: 4

D: 5

E: 6

F: 7