Deck 11: Tactical Decision Making

Question 1

What are the quantitative factors that should be considered when evaluating a make-or-buy decision?

A)the quality of the outside supplier's product
B)whether the outside supplier can provide the needed quantities
C)whether the outside supplier can provide the product when it is needed
D)the net income of the division

Answer 1

D

Question 2

Which of the following is an action taken by a company that might increase tariffs?

A)Alter materials to increase the domestic content.
B)Restrict the amount of imported materials.
C)Increase the amount of imported materials.
D)Utilize foreign trade zones.

Answer 2

C

Question 3

What are foreign trade zones?

A)zones that are located on Canadian soil but are considered to be outside of Canada commerce for tariff purposes
B)zones that are located in foreign countries and designed to export to Canada
C)zones that are located in foreign countries and are designed to import from Canada
D)zones that are located in Canada and are considered part of Canada for tariff purposes

Answer 3

A

Question 4

In order for costs or benefits to be relevant,what must be true?

A)The costs relate to decisions for the future.
B)The costs must be in per unit format.
C)The costs relate to both the future and the past.
D)The costs must be the same across the alternatives.

Question 5

What is a tactical decision?

A)an often small-scale action that serves a larger purpose
B)a small decision with little impact on the business
C)a long-run decision that has an immediate impact
D)a decision made by a lower-level manager

Question 6

What are relevant costs?

A)past costs
B)future costs
C)full costs
D)cost drivers

Question 7

What is the term for future costs that differ across alternatives?

A)relevant costs
B)irrelevant costs
C)sunk costs
D)past costs

Question 8

Which of the following is an important qualitative factor to consider regarding a special order?

A)variable costs associated with the special order
B)avoidable fixed costs associated with the special order
C)effect the sale of special-order units will have on the sale of regularly priced units
D)incremental revenue from the special order

Question 9

Which costs are important when making a decision between two alternatives?

A)Variable costs may not be relevant when the decision alternatives have the same activity levels.
B)Variable costs are not relevant when the decision alternatives have different activity levels.
C)Sunk costs are always relevant.
D)Fixed costs are never relevant.

Question 10

What decision-making process consists of choosing among alternatives with an immediate or limited end in view?

A)long-run decision making
B)tactical decision making
C)universal decision making
D)opportunity decision making

Question 11

Listed below are the steps in the tactical decision-making process. I. Comparing relevant costs and relating to stratepre goals
II. Identifying feasible alternatives
III. Identifying costs and benefits and elininating irrelevant costs
IV. Selecting best alternative
V. Defining the problem What is the proper sequence of steps?

A)I,II,V,III,IV
B)II,I,V,III,IV
C)V,II,III,I,IV
D)V,III,II,IV,I

Question 12

What are sunk costs?

A)future costs that have no benefit
B)relevant costs that have only short-run benefits
C)target costs
D)allocation of costs that have already occurred

Question 13

The Titanic hit an iceberg and sank.In deciding whether or not to salvage the ship,what is its book value?

A)a relevant cost
B)a sunk cost
C)an opportunity cost
D)a discretionary cost

Question 14

What is the term for the use of relevant cost data to identify the alternative that provides the greatest benefit to the organization?

A)target cost analysis
B)functional cost analysis
C)activity cost analysis
D)tactical cost analysis

Question 15

A purchasing agent has two potential firms from which to buy materials for production.If both firms charge the same price,what is the material cost?

A)an irrelevant cost
B)a relevant cost
C)a sunk cost
D)an opportunity cost

Question 16

What is the term for future costs that differ across alternatives?

A)relevant costs
B)target cost
C)full costs
D)activity-based costs

Question 17

What is the first step in the tactical decision-making process?

A)Compare full costs and benefits for alternatives.
B)Identify feasible alternatives.
C)Select the best alternative.
D)Recognize and define the problem.

Question 18

According to the textbook,what does sound decision making consist of?

A)only concerns the short run
B)consists of large-scale actions that serve a broad purpose
C)consists of supporting the strategic objectives of the firm
D)only concerns the long run

Question 19

Which of the following is an example of a sunk cost?

A)materials needed for production
B)purchase cost of machinery for production
C)labour for production
D)supplies for production

Question 20

What is tactical decision making?

A)Decision making that consists of choosing among alternatives with a long term view.
B)Decision making that consists of choosing among alternatives using only relevant cost information.
C)Decision making that consists of choosing among alternatives with an immediate end in view.
D)Decision making that consists of choosing among alternatives using only qualitative factors.

Question 21

Salda Industries employs 500 workers in the factory.These workers produced 85,000 units in last year.Due to a special order,the units produced in the current year increased to 95,000 units.However,Salda produced these units without adding workers.How is that possible?

A)The plant had some unused activity capacity.
B)The employees were a flexible resource in this situation.
C)The labour cost associated with the additional units sold will be a relevant cost.
D)The employees worked overtime without pay.

Question 22

Miller Company produces speakers for home stereo units.The speakers are sold to retail stores for $30.Manufacturing and other costs are as follows: $\begin{array}{lrlr}\text { Variable costs per unit: } & & \text { Fixed costs per month: } \\\text { Direct materials } & \$ 9.00 & \text { Factory overhead } & \$ 120,000 \\\text { Direct labour } & 4.50 & \text { Selling and admin. } & \underline{60,000} \\\text { Factory overhead } & 3.00 & \text { Total } & \$ 180,000 \\\text { Distribution } & 1.50 & & \\\text { Total } & \$ 18.00 & &\end{array}$
The variable distribution costs are for transportation to the retail stores.The current production and sales volume is 20,000 per year.Capacity is 25,000 units per year.

-
A Tennessee manufacturing firm has offered a one-year contract to supply speaker parts at a cost of $6.00 per unit.If Miller Company accepts the offer,it will be able to reduce variable costs by 30 percent and rent unused space to an outside firm for $18,000 per year.All other information remains the same as the original data.What is the effect on profits if Miller Company buys from the Tennessee firm?

A)increase of $6,000
B)increase of $13,000
C)increase of $19,000
D)decrease of $19,000

Question 23

Foster Industries manufactures 20,000 components per year.The manufacturing cost of the components was determined as follows: $\begin{array}{lr}\text { Direct materials } & \$ 150,000 \\\text { Direct labour } & 240,000 \\\text { Variable manufacturing overhead } & 90,000 \\\text { Fixed manufacturing overhead } & 120,000 \\\text { Total } & \$ 600,000\end{array}$
An outside supplier has offered to sell the component for $25.50.
What is the effect on income if Foster Industries purchases the component from the outside supplier?

A)$30,000 decrease
B)$30,000 increase
C)$90,000 decrease
D)$90,000 increase

Question 24

Which of the following would be classified as committed short-term resources?

A)salaried employees
B)depreciation on building
C)fuel to generate electricity internally
D)lease on machinery

Question 25

Miller Company produces speakers for home stereo units.The speakers are sold to retail stores for $30.Manufacturing and other costs are as follows: $\begin{array}{lrlr}\text { Variable costs per unit: } & & \text { Fixed costs per month: } \\\text { Direct materials } & \$ 9.00 & \text { Factory overhead } & \$ 120,000 \\\text { Direct labour } & 4.50 & \text { Selling and admin. } & \underline{60,000} \\\text { Factory overhead } & 3.00 & \text { Total } & \$ 180,000 \\\text { Distribution } & 1.50 & & \\\text { Total } & \$ 18.00 & &\end{array}$
The variable distribution costs are for transportation to the retail stores.The current production and sales volume is 20,000 per year.Capacity is 25,000 units per year.

-
A Manitoba manufacturing firm has offered a one-year contract to supply speaker parts at a cost of $16.00 per unit.If Miller Company accepts the offer,it will be able to rent unused space to an outside firm for $18,000 per year.All other information remains the same as the original data.What is the effect on profits if Miller Company buys from the Manitoba firm?

A)decrease of $6,000
B)decrease of $19,000
C)increase of $19,000
D)increase of $38,000

Question 26

Foster Industries manufactures 20,000 components per year.The manufacturing cost of the components was determined as follows: $\begin{array}{lr}\text { Direct materials } & \$ 150,000 \\\text { Direct labour } & 240,000 \\\text { Inspecting products } & 60,000 \\\text { Providing power } & 30,000 \\\text { Providing supervision } & 40,000 \\\text { Setting up equipment } & 60,000 \\\text { Moving materials } & 20,000 \\\text { Total } & \$ 600,000\end{array}$
If the component is not produced by Foster,inspection of products and provision of power costs will be only 10 percent of the production costs; moving materials costs and setting up equipment costs will be only 50 percent of the production costs; and supervision costs will amount to only 40 percent of the production amount.An outside supplier has offered to sell the component for $25.50.
What is the effect on income if Foster Industries purchases the component from the outside supplier?

A)$25,000 increase
B)$45,000 increase
C)$90,000 decrease
D)$90,000 increase

Question 27

Which of the following would be classified as committed long-term resources?

A)salaried employees
B)depreciation on building
C)wages of manufacturing employees
D)production supplies

Question 28

Vest Industries manufactures 40,000 components per year.The manufacturing cost of the components was determined as follows: $\begin{array}{lr}\text { Direct materials } & \$ 75,000 \\\text { Direct labour } & 120,000 \\\text { Variable manufacturing overhead } & 45,000 \\\text { Fixed manufacturing overhead } & 60,000 \\\text { Total } & \$ 300,000\end{array}$
An outside supplier has offered to sell the component for $12.75.

-
What is the effect on income if Vest Industries purchases the component from the outside supplier?

A)$30,000 decrease
B)$30,000 increase
C)$270,000 decrease
D)$270,000 increase

Question 29

What is the term for the cost of acquiring activity capacity?

A)joint costs
B)resource spending
C)absorption costing
D)variable costing

Question 30

Harris Company uses 5,000 units of part AA1 each year.The cost of manufacturing one unit of part AA1 at this volume is as follows: $$\begin{array} { l r } \text { Direct materals } &\$10.00 \\\text { Direct labaus } & 14.00 \\\text { Variable overhead } & 6.00 \\\text { Fixed averhead } & 4.00 \\\text { Total } & \$ 34.00\end{array}$$ An outside supplier has offered to sell Harris Company unlimited quantities of part AA1 at a unit cost of $31.00.If Harris Company accepts this offer,it can eliminate 50 percent of the fixed costs assigned to part AA1.Furthermore,the space devoted to the manufacture of part AA1 would be rented to another company for $24,000 per year.If Harris Company accepts the offer of the outside supplier,what will be the effect on annual profits?

A)increase by $2,500
B)increase by $14,500
C)increase by $22,000
D)increase by $29,000

Question 31

In the activity resource model,what are flexible resources?

A)resources acquired in advance of usage
B)resources acquired as used and needed
C)usually acquired in lumpy amounts
D)normally fixed or mixed costs

Question 32

Miller Company produces speakers for home stereo units.The speakers are sold to retail stores for $30.Manufacturing and other costs are as follows: $\begin{array}{lrlr}\text { Variable costs per unit: } & & \text { Fixed costs per month: } \\\text { Direct materials } & \$ 9.00 & \text { Factory overhead } & \$ 120,000 \\\text { Direct labour } & 4.50 & \text { Selling and admin. } & \underline{60,000} \\\text { Factory overhead } & 3.00 & \text { Total } & \$ 180,000 \\\text { Distribution } & 1.50 & & \\\text { Total } & \$ 18.00 & &\end{array}$
The variable distribution costs are for transportation to the retail stores.The current production and sales volume is 20,000 per year.Capacity is 25,000 units per year.

-
The speakers are currently unpackaged.Packaging them individually would increase costs by $1.20 per unit.However,the units could then be sold for $33.00.All other information remains the same as the original data.What is the effect on profits if Miller Company packages the speakers?

A)decrease of $24,000
B)decrease of $36,000
C)increase of $36,000
D)no change

Question 33

Which of the following represents an accurate relationship between costs,their relationships,and the relevant classification?

Question 34

What is a decision to make a component internally versus through a supplier?

A)a special-order decision
B)a keep-or-drop a product-line decision
C)a make-or-buy decision
D)a process further decision

Question 35

Vest Industries manufactures 40,000 components per year.The manufacturing cost of the components was determined as follows: $\begin{array}{lr}\text { Direct materials } & \$ 75,000 \\\text { Direct labour } & 120,000 \\\text { Variable manufacturing overhead } & 45,000 \\\text { Fixed manufacturing overhead } & \$ 60,000 \\\text { Total } & \$ 300,000\end{array}$
An outside supplier has offered to sell the component for $12.75.

-
Vest Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component from the outside supplier.
What is the effect on income if Vest purchases the component from the outside supplier?

A)$135,000 increase
B)$165,000 decrease
C)$195,000 increase
D)$225,000 decrease

Question 36

Which of the following costs is irrelevant to a make-or-buy decision?

A)$10,000 of direct labour used to manufacture the parts
B)$30,000 of depreciation on the plant used to manufacture the parts
C)the supervisor's salary of $25,000 that will be avoided if the part is purchased from an outside supplier
D)$15,000 in rent from leasing the production space to another company if the part is purchased from an outside supplier

Question 37

Foster Industries manufactures 20,000 components per year.The manufacturing cost of the components was determined as follows: $\begin{array}{lr}\text { Direct materials } & \$ 150,000 \\\text { Direct labour } & 240,000 \\\text { Variable manufacturing overhead } & 90,000 \\\text { Fixed manufacturing overhead } & 120,000 \\\text { Total } & \$ 600,000\end{array}$
An outside supplier has offered to sell the component for $25.50.
Foster Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component from the outside supplier.
What is the effect on income if Foster purchases the component from the outside supplier?

A)$15,000 increase
B)$45,000 increase
C)$75,000 decrease
D)$105,000 increase

Question 38

What defines flexible resources?

A)A change in resource spending will occur only if the demand for a resource drops permanently and exceeds demand enough so the activity capacity will be reduced.
B)Often,resources are acquired in advance for multiple periods and are therefore irrelevant.
C)Decisions often affect multi-period capabilities.
D)If the demand for an activity changes across alternatives,then resource spending will change and the cost of the activity will be relevant to the decision.

Question 39

Is upfront resource spending relevant?

A)No,it is always irrelevant because it relates to the future.
B)Yes,it is always relevant because it could reduce future costs.
C)No,it is a sunk cost and therefore is never relevant.
D)Yes,it is always relevant because upfront resource spending will generate future revenues or benefits.

Question 40

Which of the following would be classified as flexible resources?

A)salaried employees
B)depreciation on building
C)fuel to generate electricity internally
D)lease on machinery

Question 41

The following information pertains to the EWIN Company’s three products:
$\begin{array}{lccc}&\underline{M}&\underline{N}&\underline{O}\\ \text { Unit sales per month } & 9.000 & \underline{14,000} & 8,00 \\ \text { Selling price per unit } & \$ 6.00 & \$ 11.25 & \$ 7.5 \\ \text { Variable costs per unit } & 3.00 & 9.00 & 7 .00 \\ \text { Unit contribution margin } & \$ 3.00 & \$ 2.25 & \$0 .50 \\ \text { Batches } & 5 & 10 &5 \\ \text { Setups } & 6 & 3 &1 \\\\\text { Direct fixed costs }\\\text { Advertising } & \$ 3,000 & \$ 2,000 & \$ 1,000 \\\text { Supervision } & 5,000 & 5,000 & 5,000\\\text { Common fired costs }\end{array}$


$\begin{array}{lrrr}\end{array}$
Inspecting products ($10,000)
Materials handling ($4,000)
Customer service ($5,000)
Plant depreciation ($6,000)
General administration ($8,000)

-Refer to the figure.When EWIN converted over to ABC it discovered the following: What would be the product margin for product M using ABC?

A)$9,000
B)$13,840
C)$19,000
D)$27,000

Question 42

Walton Company manufactures a product with the following costs per unit at the expected production level of 84,000 units:
$\begin{array}{llr} \text {Direct materials } &\$12\\ \text { Direct labour } &36\\ \text { Variable manufacturing overhead} &18\\ \text { Fixed manufacturing overhead } &24\\\end{array}$
The company has the capacity to produce 90,000 units.The product regularly sells for $120.

-Refer to the figure.If a wholesaler offered to buy 4,500 units for $100 each,what would be the effect of the special order on income?

A)$45,000 increase
B)$90,000 decrease
C)$153,000 increase
D)$450,000 increase

Question 43

Which of the following costs is irrelevant to a decision to sell a product at split-off or process the product further and then sell the product?

A)joint costs allocated to the product
B)the selling price of the product at split-off
C)the additional processing costs after split-off
D)the selling price of the product after further processing

Question 44

The following information pertains to Ewing Company's three products: $\begin{array}{lrrrr}& \underline{\text { D }}&\underline{E} &\underline{F} \\\text { Unit sales per month } & \underline{900} & \underline{1.400} & \underline{800} \\\\\text { Selling price per unit } & \$ 6.00 & \$ 11.25 & \$ 7.50 \\\text { Variable costs per unit } & \underline{3.00} & \underline{9.00} & \underline{7.80} \\\text { Unit contribution margin } & \$ 3.00 & \$ 2.25 & \$(0.30\end{array}$



-Assume that product F is discontinued and the space is used to produce E.Product E's production is increased to 2,200 units per month,but E's selling price of all units of E is reduced to $10.20.What will be the effect on monthly profits?

A)decrease by $270
B)increase by $1,200
C)decrease by $2,070
D)increase by $2,640

Question 45

Which of the following costs is relevant to a special-order decision?

A)the direct labour costs to manufacture the special-order units
B)the fixed manufacturing overhead incurred to manufacture the special-order units
C)the portion of the cost of leasing the factory that is allocated to the special order
D)the direct materials used for the regular production

Question 46

What is the term for a decision to make or eliminate an unprofitable product?

A)special-order decision
B)keep-or-drop a product-line decision
C)make-or-buy decision
D)process further decision

Question 47

The operations of Knickers Corporation are divided into the Pacers Division and the Bulls Division.Projections for the next year are as follows: $\begin{array}{lccc}&\text { Pacers } & \text { Bulls } & \\&\text { Division } & \text { Division } & \text { Total }\\\text { Sales } & \$ 420,000 & \$ 252,000 & \$ 672,000 \\ \text { Variable costs } & 147,000 & 115,500 & 262,500 \\ \text { Contribution margin } & \$ 273,000 & \$ 136,500 & \$ 409,500 \\ \text { Direct fixed costs } & 126,000 & 105,000 & 231,00 \\\text {Segment margin } & \$ 147,000 & \$ 31,500 & \$ 178,500 \\ \text {Allocated common costs } & 63,000 & 47,250 & 110,250 \\\text { ting income (loss) } & \$ 84,000 & \$ 1 5 , 7 5 0 &\$68,250 \\\end{array}$ What would be the operating income for Knickers Corporation as a whole if the Bulls Division were dropped?

A)$36,750
B)$68,250
C)$84,000
D)$99,750

Question 48

Which of the following costs is relevant to a make-or-buy decision?

A)original cost of the production equipment
B)annual depreciation of the equipment
C)amount that would be received if the production equipment were sold
D)cost of direct materials purchased last month and used to manufacture the component

Question 49

Houston Corporation manufacturers a part for its production cycle.The costs per unit for 5,000 units of this part are as follows: $$\begin{array} { l r } \text { Direct materials } & \$32\\\text { Direct labour } & 40 \\\text { Variable overhead } & 16 \\\text { Fixed overhead } & 32 \\\text { Total } & \$120\\\end{array}$$ Johnson Company has offered to sell Houston Corporation 5,000 units of the part for $112 per unit.If Houston Corporation accepts Johnson Company's offer,total fixed costs will be reduced to $60,000.What alternative is more desirable and by what amount is it more desirable?
$\begin{array}{lll}& \text { Alternative}& \text { Amount}\\\end{array}$

A) $\begin{array}{lll}& \text { Make } &&& \$ 20,000 \\\end{array}$
B) $\begin{array}{lll}& \text { Buy } &&&& \$ 40,000 \\\end{array}$
C) $\begin{array}{lll}& \text { Buy } &&&& \$ 100,000 \\\end{array}$
D) $\begin{array}{lll}& \text { Make }&& & \$ 120,000\end{array}$

Question 50

Walton Company manufactures a product with the following costs per unit at the expected production level of 84,000 units:
$\begin{array}{llr} \text {Direct materials } &\$12\\ \text { Direct labour } &36\\ \text { Variable manufacturing overhead} &18\\ \text { Fixed manufacturing overhead } &24\\\end{array}$
The company has the capacity to produce 90,000 units.The product regularly sells for $120.

-Refer to the figure.A wholesaler has offered to pay $110 a unit for 7,500 units. If the special order is accepted,what would be the effect on operating income?

A)$75,000 decrease
B)$249,000 increase
C)$429,000 increase
D)$495,000 increase

Question 51

Which of the following costs is irrelevant for special decisions?

A)incremental costs
B)sunk costs
C)avoidable costs
D)differing costs

Question 52

The following information pertains to Ewing Company's three products: $\begin{array}{lrrrr}& \underline{\text { D }}&\underline{E} &\underline{F} \\\text { Unit sales per month } & \underline{900} & \underline{1.400} & \underline{800} \\\\\text { Selling price per unit } & \$ 6.00 & \$ 11.25 & \$ 7.50 \\\text { Variable costs per unit } & \underline{3.00} & \underline{9.00} & \underline{7.80} \\\text { Unit contribution margin } & \$ 3.00 & \$ 2.25 & \$(0.30\end{array}$


-Assume that product F is discontinued and the space used to produce product F is rented for $600 per month.What will be the effect on monthly profits?

A)increase by $360
B)increase by $600
C)increase by $840
D)decrease by $5,400

Question 53

The following information pertains to the Ewing Company's three products: $\begin{array}{lrrrr}& \underline{\text { D }}&\underline{E} &\underline{F} \\\text { Unit sales per month } & \underline{900} & \underline{1.400} & \underline{800} \\\\\text { Selling price per unit } & \$ 6.00 & \$ 11.25 & \$ 7.50 \\\text { Variable costs per unit } & \underline{3.00} & \underline{9.00} & \underline{7.80} \\\text { Unit contribution margin } & \$ 3.00 & \$ 2.25 & \$(0.30\end{array}$



-Assume that the selling price of product F is increased to $8.25 with a reduction in monthly sales to 400 units.What will be the effect on monthly profits?

A)decrease by $60
B)increase by $180
C)increase by $420
D)increase by $2,070

Question 54

The operations of Smits Corporation are divided into the Childs Division and the Jackson Division.Projections for the next year are as follows: $\begin{array}{lccc}&\text { Childs } & \text { Jackson } & \\&\text { Division } & \text { Division } & \text { Total }\\ \text { Sales } & \$ 250,000 & \$ 180,000&\$430,000 \\ \text { Variable costs } & 90,000 & 100,000 &190,000\\ \text { Contribution margin } & \$ 160,000 & \$ 80,000&\$240,000 \\ \text { Direct fixed costs } & 75,000 & 62,500&137,500 \\ \text { Segment margin } & \$ 85,000 & \$ 17,500 &\$102,500\\\text { Allocated common costs } & 35,000 & 27,500&62,500 \\\text { perating income (loss) } & \overline{\$ 50,000} & \$(10,000)&\$40,000 \\\end{array}$ What would be the operating income for Smits Corporation as a whole if the Jackson Division were dropped?

A)$22,500
B)$40,000
C)$50,000
D)$60,000

Question 55

What is the term for a decision that focuses on whether a specially priced order should be accepted or rejected?

A)a special-order decision
B)a keep-or-drop a product-line decision
C)a make-or-buy decision
D)a process further decision

Question 56

The following information pertains to the EWIN Company’s three products:
$\begin{array}{lccc}&\underline{M}&\underline{N}&\underline{O}\\ \text { Unit sales per month } & 9.000 & \underline{14,000} & 8,00 \\ \text { Selling price per unit } & \$ 6.00 & \$ 11.25 & \$ 7.5 \\ \text { Variable costs per unit } & 3.00 & 9.00 & 7 .00 \\ \text { Unit contribution margin } & \$ 3.00 & \$ 2.25 & \$0 .50 \\ \text { Batches } & 5 & 10 &5 \\ \text { Setups } & 6 & 3 &1 \\\\\text { Direct fixed costs }\\\text { Advertising } & \$ 3,000 & \$ 2,000 & \$ 1,000 \\\text { Supervision } & 5,000 & 5,000 & 5,000\\\text { Common fired costs }\end{array}$


$\begin{array}{lrrr}\end{array}$
Inspecting products ($10,000)
Materials handling ($4,000)
Customer service ($5,000)
Plant depreciation ($6,000)
General administration ($8,000)

-Refer to the figure.When EWIN converted over to ABC it discovered the following: What would be the operating income for EWIN?

A)$9,000
B)$13,840
C)$19,000
D)$27,000

Question 57

Abbott Company is considering purchasing a new machine to replace a machine purchased one year ago that is not achieving the expected results.The following information is available: $\begin{array}{ll}\text { Expected maintenance costs of new machine } & \$ 12,000 \text { per year } \\\text { Purchase price of existing machine } & \$ 150,000 \\\text { Expected cost savings of new machine } & \$ 20,000 \text { per year } \\\text { Expected maintenance costs of existing machine } & \$ 8,000 \text { per year } \\\text { Resale value of existing machine } & \$ 35,000\end{array}$
Which of these items is irrelevant?

A)expected maintenance costs of new machine
B)purchase cost of existing machine
C)expected maintenance costs of existing machine
D)expected resale value of existing machine

Question 58

The following information pertains to the EWIN Company’s three products:
$\begin{array}{lccc}&\underline{M}&\underline{N}&\underline{O}\\ \text { Unit sales per month } & 9.000 & \underline{14,000} & 8,00 \\ \text { Selling price per unit } & \$ 6.00 & \$ 11.25 & \$ 7.5 \\ \text { Variable costs per unit } & 3.00 & 9.00 & 7 .00 \\ \text { Unit contribution margin } & \$ 3.00 & \$ 2.25 & \$0 .50 \\ \text { Batches } & 5 & 10 &5 \\ \text { Setups } & 6 & 3 &1 \\\\\text { Direct fixed costs }\\\text { Advertising } & \$ 3,000 & \$ 2,000 & \$ 1,000 \\\text { Supervision } & 5,000 & 5,000 & 5,000\\\text { Common fired costs }\end{array}$


$\begin{array}{lrrr}\end{array}$
Inspecting products ($10,000)
Materials handling ($4,000)
Customer service ($5,000)
Plant depreciation ($6,000)
General administration ($8,000)

-Refer to the figure.What would be the product margin for product M using functional-based costing?

A)$9,000
B)$13,840
C)$19,000
D)$41,500

Question 59

The following information pertains to Dodge Company's three products: $\begin{array}{lrrr}&\text {A}&\text {B}&\text {C}\\\text { Unit sales per year } & \underline{250} & \underline{400} & \underline{250} \\\\\text { Selling price per unit } & \$ 9.00 & \$ 12.00 & \$ 9.00 \\\text { Variable costs per unit } & \underline{3.60} & \underline{\$ 5.00} & \underline{9.90} \\\text { Unit contribution margin } &\$5.40&\$3.00&\$(0.90)\\\text { Contribution margin ratio } &60\%&25\%&(10)\%\end{array}$ Assume that product C is discontinued and the extra space is rented for $300 per month.All other information remains the same as the original data.What will be the effect on annual profits?

A)remain the same
B)increase by $75
C)decrease by $75
D)increase by $525

Question 60

The following information pertains to the EWIN Company’s three products:
$\begin{array}{lccc}&\underline{M}&\underline{N}&\underline{O}\\ \text { Unit sales per month } & 9.000 & \underline{14,000} & 8,00 \\ \text { Selling price per unit } & \$ 6.00 & \$ 11.25 & \$ 7.5 \\ \text { Variable costs per unit } & 3.00 & 9.00 & 7 .00 \\ \text { Unit contribution margin } & \$ 3.00 & \$ 2.25 & \$0 .50 \\ \text { Batches } & 5 & 10 &5 \\ \text { Setups } & 6 & 3 &1 \\\\\text { Direct fixed costs }\\\text { Advertising } & \$ 3,000 & \$ 2,000 & \$ 1,000 \\\text { Supervision } & 5,000 & 5,000 & 5,000\\\text { Common fired costs }\end{array}$


$\begin{array}{lrrr}\end{array}$
Inspecting products ($10,000)
Materials handling ($4,000)
Customer service ($5,000)
Plant depreciation ($6,000)
General administration ($8,000)

-Refer to the figure.When EWIN converted over to ABC it discovered the following: What would be the operating income for EWIN?

A)$8,500
B)$9,000
C)$19,000
D)$27,000

Question 61

Reggie Corporation manufactures a single product with the following unit costs for 1,000 units:
$$\begin{array} { l r } \text { Direct materials } & \$ 2,400 \\\text { Direct labour } & 960 \\\text { Factory overhead (30\% variable) } & 1,800 \\\text { Selling expenses (50\% variable) } & 900 \\\text { Administrative expenses (10\% variable) } & \$ 80 \\\text { Total per unit } & \$ 6,900\end{array}$$ Recently,a company approached Reggie Corporation about buying 100 units for $5,100 each.Currently,the models are sold to dealers for $7,800.Reggie Corporation's capacity is sufficient to produce the extra 100 units.No additional selling expenses would be incurred on the special order.

-Refer to the figure.Assume there is additional capacity for 60 more units and the firm has to reduce regular customer sales by 40 units in order to contract the special order.There are selling expenses on only the sales to the regular customers.What is the net income if the special order of 100 units is accepted?

A)$831,960
B)$876,960
C)$900,000
D)$1,011,600

Question 62

Under what circumstances might a firm be asked to accept a special order of its product for a reduced price?

A)if it can be concealed from the government
B)if excess capacity exists
C)if the order is small
D)if the plant is producing at maximum capacity

Question 63

Reggie Corporation manufactures a single product with the following unit costs for 1,000 units:
$$\begin{array} { l r } \text { Direct materials } & \$ 2,400 \\\text { Direct labour } & 960 \\\text { Factory overhead (30\% variable) } & 1,800 \\\text { Selling expenses (50\% variable) } & 900 \\\text { Administrative expenses (10\% variable) } & \$ 80 \\\text { Total per unit } & \$ 6,900\end{array}$$ Recently,a company approached Reggie Corporation about buying 100 units for $5,100 each.Currently,the models are sold to dealers for $7,800.Reggie Corporation's capacity is sufficient to produce the extra 100 units.No additional selling expenses would be incurred on the special order.

-Refer to the figure.If Reggie Corporation wants to increase its profit by $18,000 on the special order,what is the minimum price it should charge per unit?

A)$4,014
B)$4,164
C)$5,100
D)$6,900

Question 64

Meco Company produces a product that has a regular selling price of $360 per unit. At a typical monthly production volume of 2,000 units, the product’s average unit cost of goods sold amounts to $270. Included in this average is $120,000 of fixed manufacturing costs. All selling and administrative costs are fixed and amount to $30,000 per month.
Meco Company has just received a special order for 1,000 units at $240 per unit. The buyer will pay transportation, and the regular selling price will not be affected if Meco accepts the order.

-Refer to the figure.Assuming Meco Company is operating at capacity and accepting the order would require an offsetting reduction in regular sales,what would be the effect on profits of accepting the order?

A)$30,000 increase
B)$120,000 decrease
C)$150,000 decrease
D)$240,000 decrease

Question 65

If a firm is at full capacity,what must the minimum special order price cover?

A)variable costs associated with the special order
B)variable and fixed manufacturing costs associated with the special order
C)variable and incremental fixed costs associated with the special order
D)variable costs and incremental fixed costs associated with the special order plus foregone contribution margin on regular units not produced

Question 66

Miller Company produces speakers for home stereo units. The speakers are sold to retail stores for $30. Manufacturing and other costs are as follows:
Variable costs per unit:
$\begin{array}{lr}\text { Variable costs per unit: }\\\text { Fixed costs per month:}\\\text { Direct materials } & \$ 9.00 \\\text { Factory overhead } & \$ 120,000 \\\text { Direct labour } & 4.50 \\\text { Selling and admin. } & 60,000 \\\text { Factory overhead } & 3.00\\\text { Total }&\$180,000\\\text { Distribution }&1.50\\\text { Total }&\$18.00\end{array}$ The variable distribution costs are for transportation to the retail stores.The current production and sales volume is 20,000 per year.Capacity is 25,000 units per year.

-Boone Products had the following unit costs: $\begin{array}{llr} \text { Direct materials } &\$24\\ \text { Direct labour} &10\\ \text { Variable factory overhead} &8\\ \text {Fixed factory overhead (allocated) } &18\end{array}$
A one-time customer has offered to buy 1,000 units at a special price of $48 per unit.Assuming that sufficient unused production capacity exists to produce the order and no regular customers will be affected by the order,how much additional profit or loss will be generated from the special order?

A)$6,000 profit
B)$12,000 loss
C)$14,000 profit
D)$48,000 profit

Question 67

If there is excess capacity,what must the minimum acceptable price for a special order cover?

A)variable costs associated with the special order
B)variable and fixed manufacturing costs associated with the special order
C)variable and incremental fixed costs associated with the special order
D)variable costs and incremental fixed costs associated with the special order plus the contribution margin usually earned on regular units

Question 68

Miller Company produces speakers for home stereo units. The speakers are sold to retail stores for $30. Manufacturing and other costs are as follows:
Variable costs per unit:
$\begin{array}{lr}\text { Variable costs per unit: }\\\text { Fixed costs per month:}\\\text { Direct materials } & \$ 9.00 \\\text { Factory overhead } & \$ 120,000 \\\text { Direct labour } & 4.50 \\\text { Selling and admin. } & 60,000 \\\text { Factory overhead } & 3.00\\\text { Total }&\$180,000\\\text { Distribution }&1.50\\\text { Total }&\$18.00\end{array}$ The variable distribution costs are for transportation to the retail stores.The current production and sales volume is 20,000 per year.Capacity is 25,000 units per year.

-Refer to the figure.A Charlottetown wholesaler has proposed to place a special one-time order for 7,000 units at a special price of $25.20 per unit.The wholesaler would pay all distribution costs,but there would be additional fixed selling and administrative costs of $6,000.In addition,assume that overtime production is not possible and that all other information remains the same as the original data.What is the effect on profits if the special order is accepted?

A)increase of $30,900
B)increase of $36,900
C)increase of $54,900
D)increase of $176,400

Question 69

Walton Company manufactures a product with the following costs per unit at the expected production level of 84,000 units: $\begin{array}{llr} \text { Direct materials} &\$12\\ \text { Direct labour } &36\\ \text { Variable manufacturing overhead } &18\\ \text { Fixed manufacturing overhead } &24\\\end{array}$
The company has the capacity to produce 90,000 units.The product regularly sells for $120.

-A wholesaler has offered to pay $110 a unit for 7,500 units.
If the special order is accepted,what would be the effect on operating income?

A)$75,000 decrease
B)$249,000 increase
C)$429,000 increase
D)$495,000 increase

Question 70

Gundy Company manufactures a product with the following costs per unit at the expected production of 30,000 units: $\begin{array}{llr} \text { Direct materials} &\$4\\ \text { Direct labour } &12\\ \text { Variable manufacturing overhead } &6\\ \text { Fixed manufacturing overhead } &8\\\end{array}$
The company has the capacity to produce 40,000 units.The product regularly sells for $40.A wholesaler has offered to pay $32 a unit for 2,000 units.
If the firm is at capacity and the special order is accepted,what would be the effect on operating income?

A)$0
B)$4,000 increase
C)$16,000 decrease
D)$20,000 increase

Question 71

Reggie Corporation manufactures a single product with the following unit costs for 1,000 units:
$$\begin{array} { l r } \text { Direct materials } & \$ 2,400 \\\text { Direct labour } & 960 \\\text { Factory overhead (30\% variable) } & 1,800 \\\text { Selling expenses (50\% variable) } & 900 \\\text { Administrative expenses (10\% variable) } & \$ 80 \\\text { Total per unit } & \$ 6,900\end{array}$$ Recently,a company approached Reggie Corporation about buying 100 units for $5,100 each.Currently,the models are sold to dealers for $7,800.Reggie Corporation's capacity is sufficient to produce the extra 100 units.No additional selling expenses would be incurred on the special order.

-Refer to the figure.How much will income change if the special order is accepted?

A)decrease by $80,000
B)increase by $111,600
C)decrease by $180,000
D)increase by $398,400

Question 72

Stars Manufacturing Company produces Products A1, B2, C3, and D4 through a joint process. The joint costs amount to $200,000.
$\text { If Processed Further }$
$\begin{array}{rrrrr}&&\text {Sales Value}&\text { Additional}\\\underline{\text { Product} } &\underline{\text { Units Produced }} & \underline{\text { at Split-Off }} & \underline{\text { Costs }} &\underline{\text { Sales Value }}\\ \mathrm{A} 1 & 3,000 & \$ 10,000 & \$ 2,500 & \$ 15,000 \\\mathrm{~B} 2 & 5,000 & 30,000 & 3,000 & 35,000 \\\mathrm{C} 3 & 4,000 & 20,000 & 4,000 & 25,000 \\\mathrm{D} 4 & 6,000 & 40,000 & 6.000 & 45,000\end{array}$


-Refer to the figure.If Product B2 is processed further,what will be the effect on profits?

A)increase by $2,000
B)decrease by $3,000
C)increase by $30,000
D)increase by $32,000

Question 73

The following information relates to a product produced by Creamer Company:
$\begin{array}{lr}\text { Direct materials } & \$ 24 \\\text { Direct labour } & 15 \\\text { Variable overhead } & 30 \\\text { Fixed overhead } & 18 \\\text { Unit cost } & \$ 87\end{array}$
Fixed selling costs are $500,000 per year,and variable selling costs are $12 per unit sold.Although production capacity is 600,000 units per year,the company expects to produce only 400,000 units next year.The product normally sells for $120 each.A customer has offered to buy 60,000 units for $90 each.
If the firm produces the special order,what would be the effect on income?

A)$360,000 increase
B)$360,000 decrease
C)$540,000 increase
D)$540,000 decrease

Question 74

Meco Company produces a product that has a regular selling price of $360 per unit. At a typical monthly production volume of 2,000 units, the product’s average unit cost of goods sold amounts to $270. Included in this average is $120,000 of fixed manufacturing costs. All selling and administrative costs are fixed and amount to $30,000 per month.
Meco Company has just received a special order for 1,000 units at $240 per unit. The buyer will pay transportation, and the regular selling price will not be affected if Meco accepts the order.

-Refer to the figure.Assuming Meco Company has excess capacity,what would be the effect on profits of accepting the order?

A)$30,000 increase
B)$30,000 decrease
C)$60,000 increase
D)$60,000 decrease

Question 75

The following information relates to a product produced by Creamer Company: $\begin{array}{lr}\text { Direct materials } & \$ 24 \\\text { Direct labour } & 15 \\\text { Variable overhead } & 30 \\\text { Fixed overhead } & 18 \\\text { Unit cost } & \$ 87\end{array}$ Fixed selling costs are $500,000 per year,and variable selling costs are $12 per unit sold.Although production capacity is 600,000 units per year,the company expects to produce only 400,000 units next year.The product normally sells for $120 each.A customer has offered to buy 60,000 units for $90 each.
What is the incremental cost per unit associated with the special order?

A)$64
B)$69
C)$81
D)$84

Question 76

Miller Company produces speakers for home stereo units. The speakers are sold to retail stores for $30. Manufacturing and other costs are as follows:
Variable costs per unit:
$\begin{array}{lr}\text { Variable costs per unit: }\\\text { Fixed costs per month:}\\\text { Direct materials } & \$ 9.00 \\\text { Factory overhead } & \$ 120,000 \\\text { Direct labour } & 4.50 \\\text { Selling and admin. } & 60,000 \\\text { Factory overhead } & 3.00\\\text { Total }&\$180,000\\\text { Distribution }&1.50\\\text { Total }&\$18.00\end{array}$ The variable distribution costs are for transportation to the retail stores.The current production and sales volume is 20,000 per year.Capacity is 25,000 units per year.

-Refer to the figure.A Calgary wholesaler has proposed to place a special one-time order of 10,000 units at a reduced price of $24 per unit.The wholesaler would pay all distribution costs,but there would be additional fixed selling and administrative costs of $3,000.All other information remains the same as the original data.What is the effect on profits if the special order is accepted?

A)increase of $12,000
B)increase of $57,000
C)increase of $75,000
D)decrease of $168,000

Question 77

Reggie Corporation manufactures a single product with the following unit costs for 1,000 units: $\begin{array}{lr}\text { Direct materrals } & \$ 2,400 \\\text { Direct labour } & 960 \\\text { Factory overhead ( } 30 \% \text { variable) } & 1,800 \\\text { Selling expenses ( } 50 \% \text { variable) } & 900 \\\text { Administrative expenses (10\% variable) } &840\\\text { Total per unit }& \$ 6,900\end{array}$
Recently,a company approached Reggie Corporation about buying 100 units for $5,100 each.Currently,the models are sold to dealers for $7,800.Reggie Corporation's capacity is sufficient to produce the extra 100 units.No additional selling expenses would be incurred on the special order.
What is the profit earned by Reggie Corporation on the original 1,000 units?

A)$900,000
B)$2,640,000
C)$6,900,000
D)$8,400,000

Question 78

Rose Manufacturing Company had the following unit costs: $\begin{array}{llr} \text { Direct materials} &\$24\\ \text { Direct labour } &8\\ \text { Variable manufacturing overhead } &10\\ \text { Fixed manufacturing overhead } &18\\\end{array}$
A one-time customer has offered to buy 2,000 units at a special price of $48 per unit.Assuming that sufficient unused production capacity exists to produce the order and no regular customers will be affected by the order,how much additional profit or loss will be generated by accepting the special order?

A)$12,000 profit
B)$24,000 loss
C)$84,000 loss
D)$96,000 profit

Question 79

Walton Company manufactures a product with the following costs per unit at the expected production level of 84,000 units: $\begin{array}{llr} \text { Direct materials} &\$12\\ \text { Direct labour } &36\\ \text { Variable manufacturing overhead } &18\\ \text { Fixed manufacturing overhead } &24\\\end{array}$

The company has the capacity to produce 90,000 units.The product regularly sells for $120.

-
If a wholesaler offered to buy 4,500 units for $100 each,what would be the effect of the special order on income?

A)$45,000 increase
B)$90,000 decrease
C)$153,000 increase
D)$450,000 increase

Question 80

Boone Products had the following unit costs: $\begin{array}{llr} \text { Direct materials } &\$24\\ \text { Direct labour} &10\\ \text { Variable factory overhead} &8\\ \text {Fixed factory overhead (allocated) } &18\end{array}$

A one-time customer has offered to buy 2,000 units at a special price of $48 per unit.Because of capacity constraints,1,000 units will need to be produced during overtime.Overtime premium is $8 per unit.How much additional profit or loss will be generated by accepting the special order?

A)$4,000 profit
B)$4,000 loss
C)$24,000 loss
D)$30,000 loss