Question 1

Tonix Corporation produces two products,P and Q.P sells for $5.00 per unit;Q sells for $6.50 per unit.Variable costs for P and Q are $3.00 and $4.50,respectively.There are 4,300 direct labor hours per month available for producing the two products.Product P requires 4.00 direct labor hours per unit,and product Q requires 5.00 direct labor hours per unit.The company can sell up to 900 units of each kind per month.What is the maximum monthly contribution margin that Todd can generate under the circumstances? (Round to nearest whole dollar. )

Accepted Answer

11ea8a42_4fc0_2b3d_8b44_e95c9d41d9fb_TB5024_00 
 11ea8a42_4fc0_2b3e_8b44_511d9c9c4353_TB5024_00 11ea8a42_4fc0_2b3f_8b44_b394c6f119ae_TB5024_00

Question 2

A company sells two products with information as follows:
  
Products are made by machine.Six units of product A can be made with five machine hours and three units of product B can be made with 0.8 machine hour.If there are no constraints on production or sales of either product,then the company should emphasize sales of product B.

Accepted Answer

The answer of A company sells two products with information...

Question 3

Doro Fill Company fabricates automobiles.Each auto includes one wiring harness,which is currently made in-house.Details of the harness fabrication are as follows:
  
A factory in Indonesia has offered to supply Doro Fill with ready-made units for a cost of $10 each.Assume that Doro Fill's fixed costs are unavoidable and that the company will not be able to use the excess capacity in any profitable manner.In order to maximize operating income,Doro Fill should not outsource.

Accepted Answer

The answer of Doro Fill Company fabricates automobiles.Each auto includes...

Question 4

Todd Corporation produces two products,P and Q.P sells for $4.00 per unit;Q sells for $5.50 per unit.Variable costs for P and Q are $2.00 and $4.50,respectively.There are 7,300 direct labor hours per month available for producing the two products.Product P requires 2.50 direct labor hours per unit,and product Q requires 2.00 direct labor hours per unit.The company can sell as many of either product as it can produce.What is the maximum monthly contribution margin that Todd can generate under the circumstances? (Round your answer to nearest whole dollar. )

Accepted Answer

11ea8a42_4fc0_0429_8b44_41334618b6e5_TB5024_00 
 11ea8a42_4fc0_042a_8b44_c5b98155b623_TB5024_00 11ea8a42_4fc0_042b_8b44_f520fc546461_TB5024_00

Question 5

A company sells two products with information as follows:

The products are machine made.Four units of product A can be made with one machine hour,and two units of product B can be made with one machine hour.The company has a maximum of 5,000 machine hours available per month.The company can sell up to 17,000 units of product A per month and up to 3,000 units of product B for the month.What is the maximum amount of contribution margin that the company could earn in a month given the stated constraints?

Accepted Answer

11ea8a42_4fc0_a07a_8b44_d7b9a66749e8_TB5024_00 
 11ea8a42_4fc0_a07b_8b44_a14ae56e4fe0_TB5024_00 11ea8a42_4fc0_a07c_8b44_65516334982b_TB5024_00

Question 6

An opportunity cost is ________.

Accepted Answer

Opportunity cost refers to the benefit that is given up by choosing an alternative course of action. Therefore, the best choice is C, which accurately defines opportunity cost. A is incorrect because it refers to the cost incurred to gain an opportunity, not the cost of choosing one opportunity over another. B is incorrect because it suggests that benefits are always gained by choosing a certain course of action, when in fact, there may be benefits given up as well. D is incorrect because it refers to costs that have already been incurred, rather than costs that are incurred as a result of a choice between alternatives.

Question 7

A company sells two products with information as follows:

The products are machine made.Four units of product A can be made with one machine hour and two units of product B can be made with one machine hour.The company has a maximum of 3,000 machine hours available per month.The company can sell up to 18,000 units of product A per month,and up to 3,000 units of product B for the month.What is the optimum product mix to maximize company's operating income?

Accepted Answer

11ea8a42_4fc0_c78e_8b44_813b5ddaf268_TB5024_00 11ea8a42_4fc0_c78f_8b44_93e502fbc6f3_TB5024_00

Question 8

Owen's Furniture manufactures a small table and a large table.The small table sells for $1,100,has variable costs of $540 per table,and takes 10 direct labor hours to manufacture.The large table sells for $1,700,has variable costs of $980,and takes eight direct labor hours to manufacture.The company has a maximum of 5,000 direct labor hours per month when operating at full capacity.If there are no constraints on sales of either of the products and the company could choose any proportions of product mix that they wanted,the maximum contribution margin that the company could earn will be ________.

Accepted Answer

11ea8a42_4fc0_2b40_8b44_2f42588ac615_TB5024_00 
 11ea8a42_4fc0_5251_8b44_c76dba2555f1_TB5024_00 11ea8a42_4fc0_5252_8b44_4399605ee26d_TB5024_00

Question 9

A company produces 300 microwave ovens per month,each of which includes one electrical circuit.The company currently manufactures the circuit in-house but is considering outsourcing the circuits at a contract cost of $34 each.Currently,the cost of producing circuits in-house includes variable costs of $28 per circuit and fixed costs of $6,000 per month.The controller says that they could outsource production of the circuit,if it reduces fixed cost more than $1,800 per month.Is this statement true or false?

Accepted Answer

Current cost of producing circuits in-house = 300 circuits x $28 variable cost per circuit + $6,000 fixed cost per month = $14,400 per month
Cost of outsourcing circuits = 300 circuits x $34 contract cost per circuit = $10,200 per month
By outsourcing production, fixed costs will be reduced by $6,000 - $10,200 = -$4,200 per month. Since this is less than the required reduction of $1,800 per month, the statement is false. However, outsourcing may still be financially beneficial if it reduces variable costs or increases efficiency.

Question 10

Valuable Electronics uses a standard part in the manufacture of different types of radios.The total cost of producing 29,000 parts is $105,000,which includes fixed costs of $50,000 and variable costs of $55,000.The company can buy the part from an outside supplier for $2 per unit and avoid 30% of the fixed costs.Assume that the company can use the freed manufacturing space to make another product that can earn a profit of $16,000.If Valuable outsources,what will be the effect on operating income?

Accepted Answer

11ea8a42_4fc1_3cc7_8b44_0dc5e5a4fb33_TB5024_00 Increase in operating income ($55,000 - $27,000)= $28,000

Question 11

Superior Containers produces restaurant storage containers .The company makes two sizes of containers: regular (55 gallon)and large (100 gallon).Demand for the products is so high that Superior can sell as many of each size as it can produce.The company uses the same machinery to produce both sizes.The machinery can be run for only 2,500 hours per period.Superior can produce 20 regular containers every hour,whereas it can produce 8 large containers in the same amount of time.Fixed costs amount to $250,000 per period.Sales prices and variable costs are as follows:
  
To maximize profits,how many of each size container should Superior produce?
Given this product mix,what will the company's operating income be?

Accepted Answer

The answer of Superior Containers produces restaurant storage containers .The...

Question 12

Gnome Company is deciding whether to continue to manufacture a component or to buy the component from a supplier.Which of the following is relevant to this decision?

Accepted Answer

The potential uses of the facilities that are currently used to manufacture the component are relevant because they represent an opportunity cost. If the facilities could be used for another purpose that generates revenue, this potential income would be foregone if the company continues to manufacture the component in-house.

Question 13

Isabelle's Furniture manufactures a small table and a large table.The small table sells for $800,has variable costs of $570 per table,and takes 10 direct labor hours to manufacture.The large table sells for $1,700,has variable costs of $970,and takes eight direct labor hours to manufacture.The company has a maximum of 5,000 direct labor hours per month when operating at full capacity.If there are no constraints on sales of either product,and the company could choose any proportions of product mix that they wanted,what is the optimum product mix to maximize operating income of the company?

Accepted Answer

11ea8a42_4fc0_5253_8b44_81a176733f96_TB5024_00 11ea8a42_4fc0_5254_8b44_85b39ea5039e_TB5024_00

Question 14

Shasta Company is trying to decide whether to continue to manufacture a particular component or to buy the component from an outside supplier.Which of the following is irrelevant with respect to this decision?

Accepted Answer

The unavoidable fixed manufacturing costs associated with the manufacture of the component are irrelevant because they will be incurred whether or not Shasta Company decides to continue manufacturing the component or buy it from an outside supplier. Therefore, they do not have any bearing on the decision. The quality of the component, the outside supplier's ability to deliver on time, and the alternative uses of facilities are all relevant factors that should be considered in the decision-making process.

Question 15

Tosh Company fabricates automobiles.Each auto includes one wiring harness,which is currently made in-house.Details of the harness fabrication are as follows:
  
A factory in Indonesia has offered to supply Tosh with ready-made units for a cost of $8 each.Assume that Tosh's fixed costs are unavoidable,but the company could use the vacated production facilities to earn an additional $5,000 of profit per month.In order to maximize operating income,Tosh should outsource.

Accepted Answer

Tosh should consider the opportunity cost of using its production facilities to earn an additional profit of $5,000 per month instead of making wiring harnesses in-house. Since the cost of outsourcing is lower than the cost of making in-house, Tosh can reduce its costs and increase its operating income by outsourcing the wiring harnesses. Therefore, the company should outsource to the factory in Indonesia to maximize its operating income.

Question 16

Sand Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp.The following per unit data are available:
  
Total fixed costs are $42,000,and the machine hour capacity is 34,000 hours per year.The Lowell Lamp has the highest contribution margin per unit and also has the highest contribution margin per machine hour,so the company should focus sales on the Lowell Lamp.

Accepted Answer

The answer of Sand Corporation manufactures two styles of lamps-a...

Question 17

Handbags R Us sells designer and everyday priced handbags.Top management is deciding which product line to emphasize.Company accountants have provided the following data:
  
The store has 5,000 square feet of floor space.If the company emphasizes everyday handbags,it can display 1,000 items in the store.If the store emphasizes designer handbags,it can display only 680 items,These numbers are also the average monthly sales in units.
Prepare an analysis to show which product the company should emphasize.Explain your answer.(Do not round intermediate answers. )

Accepted Answer

The answer of Handbags R Us sells designer and everyday...

Question 18

________ refers to the benefit given up by choosing an alternative course of action.

Accepted Answer

Opportunity cost refers to the benefit that is forgone by choosing one alternative course of action over another. It is the cost of the next best alternative use of resources. Therefore, option A is the correct answer. Sunk cost (option B) refers to the costs that have already been incurred and cannot be recovered, while relevant cost (option C) refers to costs that will be impacted by a certain decision. Irrelevant cost (option D) has no impact on decision making.

Question 19

A company sells two products with information as follows:

The products are machine made.Four units of product A can be made with one machine hour,and two units of product B can be made with one machine hour.The company has a maximum of 3,000 machine hours available per month.Assume there are no constraints on sales of either product,and the company can choose any product mix they wish.What is the maximum amount of contribution margin that the company could earn in a month?

Accepted Answer

11ea8a42_4fc0_7966_8b44_f16d92c00561_TB5024_00 
 11ea8a42_4fc0_7967_8b44_7f6b7ad41d12_TB5024_00 11ea8a42_4fc0_7968_8b44_c76bd776361e_TB5024_00

Question 20

Smash Company has 5,000 machine hours available annually to manufacture badminton racquets.The following information is available for the two different racquets produced by Smash:

How many units of each racquet should be manufactured for the company to maximize its operating income? (Round your answer to the nearest whole unit. )

Accepted Answer

11ea8a42_4fbf_b602_8b44_6b6d30d35be9_TB5024_00 11ea8a42_4fbf_b603_8b44_d5ce31c08c14_TB5024_00

Quiz 25: Short-Term Business Decisions

An opportunity cost is ________.

Gnome Company is deciding whether to continue to manufacture a component or to buy the component from a supplier.Which of the following is relevant to this decision?

Shasta Company is trying to decide whether to continue to manufacture a particular component or to buy the component from an outside supplier.Which of the following is irrelevant with respect to this decision?

________ refers to the benefit given up by choosing an alternative course of action.