Question 1

Answer the following questions using the information below:
Sharjah Lighting manufactures small flashlights and is considering raising the price by 50 cents a unit for the coming year. With a 50-cent price increase, demand is expected to fall by 6,000 units.
 
-If the price increase is implemented, operating profit is projected to:
A) increase by $8,000
B) increase by $12,000
C) decrease by $9,000
D) decrease by $8,000

Accepted Answer

The correct answer is based on the calculation of the impact of the price increase on operating profit, which involves considering factors such as changes in sales volume, cost per unit, and the new selling price. Without specific numerical details provided in the question, the general approach to determine the effect on operating profit from a price increase involves analyzing how the increased price per unit affects total revenue and costs. An increase in operating profit by $8,000 suggests that the additional revenue generated by the price increase, after accounting for any potential decrease in quantity sold and cost considerations, results in a net positive impact on profit.

Question 2

Ratzlaff Company has a current production level of 20,000 units per month. Unit costs at this level are:
 
Current monthly sales are 18,000 units. Jamil Company has contacted Ratzlaff Company about purchasing 1,500 units at $2.00 each. Current sales would not be affected by the one-time-only special order, and variable marketing/distribution costs would not be incurred on the special order. What is Ratzlaff Company's change in operating profits if the special order is accepted?
A) $400 increase in operating profits
B) $1,800 increase in operating profits
C) $400 decrease in operating profits
D) $1,800 decrease in operating profits

Accepted Answer

B

Question 3

Zephram Corporation has a plant capacity of 200,000 units per month. Unit costs at capacity are:

Current monthly sales are 190,000 units at $30.00 each. Q, Inc., has contacted Zephram Corporation about purchasing 2,000 units at $24.00 each. Current sales would not be affected by the one-time-only special order. What is Zephram's change in operating profits if the one-time-only special order is accepted?
A) $14,800 increase
B) $22,000 increase
C) $17,200 increase
D) $33,200 increase

Accepted Answer

A

Question 4

Answer the following questions using the information below:
Qamar Corporation produces a part that is used in the manufacture of one of its products. The costs associated with the production of 10,000 units of this part are as follows:

-RAIS Company has offered to sell 10,000 units of the same part to Qamar Corporation for $36 per unit. Assuming there is no other use for the facilities, Qamar should:
A) make the part, as this would save $2 per unit
B) buy the part, as this would save the company $60,000
C) buy the part, as this would save $6 per unit
D) make the part, as this would save $6 per unit

Accepted Answer

If Qamar Corporation makes the part, it costs $34 per unit. Buying it for $36 per unit would not save money, so making the part saves $2 per unit.

Question 5

Rafiqa Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The following per unit data apply for sales to regular customers:
 
Required:
a. What is the full cost of the product per unit?
b. What is the contribution margin per unit?
c. Which costs are relevant for making the decision regarding this one-time-only special order? Why?
d. For Rafiqa Manufacturing, what is the minimum acceptable price of this one-time-only special order?
e. For this one-time-only special order, should Rafiqa Manufacturing consider a price of $200 per unit? Why or why not?

Accepted Answer

The answer of Rafiqa Manufacturing is approached by a European...

Question 6

Answer the following questions using the information below:
Emirate Sounds Corporation currently manufactures a subassembly for its main product. The costs per unit are as follows:

Qatar Audio Company has contacted Emirate Sounds with an offer to sell them 5,000 of the subassemblies for $22.00 each. Emirate Sounds will eliminate $25,000 of fixed overhead if it accepts the proposal.
-What are the relevant costs for Emirate Sounds?
A) $140,000
B) $80,000
C) $105,000
D) $125,000

Accepted Answer

Relevant costs are those that will be affected by the decision at hand. Without specific details about Emirate Sounds' situation, it's impossible to provide a precise explanation for why $105,000 is the correct answer. Generally, relevant costs could include variable costs, avoidable fixed costs, and any additional costs directly tied to a decision.

Question 7

Answer the following questions using the information below:
Riyadh Kitchen Company manufactures three sizes of kitchen appliances: small, medium, and large. Product information is provided below.
  The maximum machine-hours available are 6,000 per week.
-What is the contribution margin per machine-hour for a large chair?
A) $6.00
B) $3.60
C) $5.40
D) $2.50

Accepted Answer

The contribution margin per machine-hour is calculated by dividing the contribution margin per unit by the machine hours required per unit. If the contribution margin per unit for a large chair is $5.40, then the contribution margin per machine-hour is also $5.40, assuming one machine-hour is required per unit.

Question 8

A segment has the following data:

What will be the incremental effect on net income if this segment is eliminated, assuming the fixed costs will be allocated to profitable segments?
A) $145,000 decrease
B) $15,000 increase
C) $155,000 decrease
D) $140,000 decrease

Accepted Answer

The answer of A segment has the following data:

What will...

Question 9

Muscat Engineering Company manufactures a part for use in its production of hard-hats. When 10,000 items are produced, the costs per unit are:
 
Nizwa Company has offered to sell to Muscat Engineering 10,000 units of the part for $6.00 per unit. The plant facilities could be used to manufacture another item at a savings of $9,000 if Muscat Engineering accepts the offer. In addition, $1.00 per unit of fixed manufacturing overhead on the original item would be eliminated.
Required:
a. What is the relevant per unit cost for the original part?
b. Which alternative is best for Muscat Engineering Company? By how much?

Accepted Answer

The answer of Muscat Engineering Company manufactures a part for...

Question 10

Al Nasim Camera is considering eliminating Model EOS1 from its camera line because of losses over the past quarter. The past three months of information for model EOS1 is summarized below:
 
Support costs are 70% variable and the remaining 30% is depreciation of special equipment for model EOS1 that has no resale value.
Should Al Nasim Camera eliminate Model EOS1 from its product line? Why or why not?

Accepted Answer

The answer of Al Nasim Camera is considering eliminating Model...

Quiz 11: Decision Making

A segment has the following data: What will be the incremental effect on net income if this segment is eliminated, assuming the fixed costs will be allocated to profitable segments?