45) Pitts Company makes a variety of paper products. One product is 20 lb. copier paper, packaged 5,000 sheets to a box. One box normally sells for $18. A large bank offered to purchase 3,000 boxes at $14 per box. Costs per box are as follows: 1 S Direct materials $8 Direct labour 3 Variable overhead Fixed overhead No variable marketing costs would be incurred on the order. The company is operating significantly below the maximum productive capacity. No fixed costs are avoidable. Should Pitts accept the order? a) b) C) d) Yes, income will increase by $6,000. Yes, income will increase by $9,000. No, income will decrease by $3,000 No, income will decrease by S6,000 46) Sherpa Company manufactures tents and sleeping bags. Tents are priced at $80, have variable cost of $55, and direct fixed costs of $130,000. Sleeping bags are priced at $60, have variable cost of $35, and direct fixed costs of $66,000. Common fixed costs equal $70,000. Last year, the division sold 5,000 tents and 10,000 sleeping bags Tents Sleeping Bags Total Sales $400,000 $600,000 $1,000,000 Less: Variable cost 275.000 350.000 625.000 Contribution margin $125,000 $250,000 $ 375,000 Less: Direct fixed overhead 130.000 66,000 196,000 Segment margin (S 5,000) $184,000 $ 179,000 Less: Common fixed overhead 70,000 Operating income $109,000 If Sherpa stopped making tents, sales of sleeping bags will drop by 10%. What would operating income be if Sherpa stopped making tents? a) b) C) d) Increase by $89,000 Decrease by $20,000 Increase by $20,000 Increase by $89,000 47) Stars Manufacturing Company produces Products AI, B2 and C3 through a joint process. The joint costs amount to $200,000. Product ?? B2 C3 Units Produced 3,000 5,000 4,000 Sales Value at Split-Off $14,000 30,000 20,000 If Processed Further Additional Sales Costs Value $2,500 $15,000 3,000 35,000 4,000 25,000 If Product B2 is processed further, profits will increase by $30,000 b) decrease by $3,000 c) increase by $32,000 d) increase by $2,000 48) Using the information from Question 47. If Product Al is processed further, profits will a) increase by $37,500 b) decrease by $1,500 c) decrease by $37,500 d) increase by $1,500 49) Elegance Bath Products, Inc. (EBP) makes a variety of ceramic sinks and tubs. The sinks sell for $150 each and have variable costs of $80. The tubs sell for $600 and have variable costs of $450. The ceramic sinks and tubs require the use of specialized molding equipment. The specialized molding equipment has 4,050 hours of capacity per year. A sink uses an average of 2 hours of specialized molding equipment time; a tub uses an average of 5 hours of specialized molding equipment time. Assume that EBP can sell as many as 1,000 sinks and 500 tubs per year. How many sinks and tubs should EBP produce respectively? a) 1,000 sinks; 410 tubs b) 1,000 sinks: 500 tubs c) 775 sinks: 500 tubs d) 775 sinks; 410 tubs 50) The unit product cost consists of direct materials cost $10; direct labour cost $20 and applied overhead cost. The applied overhead rate is 50% of direct labour cost. What is the unit selling price if the company's mark-up policy is 20%? a) b) $60 $40 $68 $48 d)
