Question 1

New Age Makeup produces face cream.Each bottle of face cream costs $10 to produce and can be sold for $13.The bottles can be sold as is or processed further into sunscreen at a cost of $14 each.New Age Makeup could sell the sunscreen bottles for $23 each.

Accepted Answer

The answer of New Age Makeup produces face cream.Each bottle...

Question 2

Marcus Company gathered the following data about the three products that it produces: $$\begin{array} { c c c c } 
\text { Present } & \begin{array} { c } 
\text { Estimated Additional } \
\text { Product }
\end{array} & \begin{array} { c } 
\text { Estimated Sales } \
\text { Sales Value }
\end{array} &\begin{array} { c }  \text { Processing Costs } \ \text { if Processed Further }\end{array}  \
\hline \text { A } & \$ 12,000 & \$ 8,000 & \$ 21,000 \
\text { B } & 14,000 & 5,000 & 18,000 \
\text { C } & 11,000 & 3,000 & 16,000
\end{array}$$ Which of the products should not be processed further?

Accepted Answer

The answer of Marcus Company gathered the following data about...

Question 3

Eddy Company is starting business and is unsure of whether to sell its product assembled or unassembled.The unit cost of the unassembled product is $60 and Eddy Company would sell it for $135.The cost to assemble the product is estimated at $27 per unit and Eddy Company believes the market would support a price of $174 on the assembled unit.What is the correct decision using the sell or process further decision rule?

Accepted Answer

The answer of Eddy Company is starting business and is...

Question 4

Moreland Clean Company spent $8000 to produce Product 89 which can be sold as is for $10000 or processed further incurring additional costs of $3000 and then be sold for $14000.Which amounts are relevant to the decision about Product 89?

Accepted Answer

The relevant costs are the ones that will change based on the decision at hand. The $8,000 is a sunk cost and does not affect the decision to process further or sell as is. The decision revolves around whether to accept the additional $3,000 cost to potentially increase sales from $10,000 to $14,000.

Question 5

Bell's Shop can make 1000 units of a necessary component with the following costs: $$\begin{array} { l r } 
\text { Direct Materials } & \$ 24,000 \
\text { Direct Labor } & 6,000 \
\text { Variable Overhead } & 3,000 \
\text { Fixed Overhead } & ?
\end{array}$$ The company can purchase the 1000 units externally for $39000.The unavoidable fixed costs are $2000 if the units are purchased externally.An analysis shows that at this external price the company is indifferent between making or buying the part.What are the fixed overhead costs of making the component?

Accepted Answer

The fixed overhead costs of making the component are $8000. This is because the total cost of making the component is $33000 (direct materials + direct labor + variable overhead + fixed overhead), and the total cost of purchasing the component is $39000. Since the company is indifferent between making or buying the part, the fixed overhead costs must be $8000 ($39000 - $33000).

Question 6

Ruth Company produces 1000 units of a necessary component with the following costs: $$\begin{array} { l r } 
\text { Direct Materials } & \$ 34,000 \
\text { Direct Labor } & 15,000 \
\text { Variable Overhead } & 9,000 \
\text { Fixed Overhead } & 10,000
\end{array}$$ Ruth Company could avoid $6000 in fixed overhead costs if it acquires the components externally.If cost minimization is the major consideration and the company would prefer to buy the components what is the maximum external price that Ruth Company would accept to acquire the 1000 units externally?

Accepted Answer

The answer of Ruth Company produces 1000 units of a...

Question 7

Crigui Music produces 60000 CDs on which to record music.The CDs have the following costs: $$\begin{array} { l r } 
\text { Direct Materials } & \$ 13,000 \
\text { Direct Labor } & 15,000 \
\text { Variable Overhead } & 3,000 \
\text { Fixed Overhead } & 7,000
\end{array}$$ Crigui could avoid $4000 in fixed overhead costs if it acquires the CDs externally.If cost minimization is the major consideration and the company would prefer to buy the 60000 units externally what is the maximum external price that Crigui would expect to pay for the units?

Accepted Answer

The answer of Crigui Music produces 60000 CDs on which...

Question 8

Fornelli Inc.can produce 100 units of a component part with the following costs: $$\begin{array} { l r } 
\text { Direct Materials } & \$ 15,000 \
\text { Direct Labor } & 6,500 \
\text { Variable Overhead } & 16,000 \
\text { Fixed Overhead } & 11,000
\end{array}$$ If Fornelli Inc.can purchase the units externally for $40000 by what amount will its total costs change?

Accepted Answer

The answer of Fornelli Inc.can produce 100 units of a...

Question 9

Fornelli Inc.can produce 100 units of a component part with the following costs: $$\begin{array} { l r } 
\text { Direct Materials } & \$ 15,000 \
\text { Direct Labor } & 6,500 \
\text { Variable Overhead } & 16,000 \
\text { Fixed Overhead } & 11,000
\end{array}$$ If Fornelli Inc.can purchase the component part externally for $44000 and only $4000 of the fixed costs can be avoided what is the correct make-or-buy decision?

Accepted Answer

The answer of Fornelli Inc.can produce 100 units of a...

Question 10

Ruth Company produces 1000 units of a necessary component with the following costs: $$\begin{array} { l r } 
\text { Direct Materials } & \$ 27,000 \
\text { Direct Labor } & 16,000 \
\text { Variable Overhead } & 4,000 \
\text { Fixed Overhead } & 7,000
\end{array}$$ None of Ruth Company's fixed overhead costs can be reduced but another product could be made that would increase profit contribution by $8000 if the components were acquired externally.If cost minimization is the major consideration and the company would prefer to buy the components what is the maximum external price that Ruth Company would be willing to accept to acquire the 1000 units externally?

Accepted Answer

The answer of Ruth Company produces 1000 units of a...

Question 11

Janssen Company has old inventory on hand that cost $24000.Its scrap value is $32000.The inventory could be sold for $80000 if manufactured further at an additional cost of $24000.What should Janssen do?

Accepted Answer

Manufacturing the inventory further and selling it for $80000 will result in a net gain of $32000 ($80000 revenue - $24000 manufacturing cost). This is greater than both the scrap value and the original cost of the inventory, making it the best choice for Janssen.

Question 12

Mallory Company manufactures widgets.Bowden Company has approached Mallory with a proposal to sell the company widgets at a price of $82000 for 100000 units.Mallory is currently making these components in its own factory.The following costs are associated with this part of the process when 100000 units are produced: $$\begin{array} { l r } 
\text { Direct material } & \$ 31,000 \
\text { Direct labor } & 29,000 \
\text { Manufacturing overhead } & 40,000 \
 \text { Total } & \$ 100,000 \
\hline
\end{array}$$ The manufacturing overhead consists of $16000 of costs that will be eliminated if the components are no longer produced by Mallory.From Mallory's point of view how much is the incremental cost or savings if the widgets are bought instead of made?

Accepted Answer

The answer of Mallory Company manufactures widgets.Bowden Company has approached...

Question 13

The decision rule on whether to sell or process further

Accepted Answer

The answer of The decision rule on whether to sell...

Question 14

The focus of a sell or process further decision is

Accepted Answer

The focus of a sell or process further decision is both incremental revenue and incremental cost. Making this decision requires analyzing whether selling a product at its current stage will generate more revenue or whether processing it further will increase its value and generate more revenue, while also considering the additional costs involved in processing it further. Therefore, both incremental revenue and incremental cost are important factors in this decision.

Question 15

Crigui Music produces 60000 CDs on which to record music.The CDs have the following costs: $$\begin{array} { l r } 
\text { Direct Materials } & \$ 13,000 \
\text { Direct Labor } & 15,000 \
\text { Variable Overhead } & 3,000 \
\text { Fixed Overhead } & 7,000
\end{array}$$ None of Crigui's fixed overhead costs can be reduced but another product could be made that would increase profit contribution by $4000 if the CDs were acquired externally.If cost minimization is the major consideration and the company would prefer to buy the CDs what is the maximum external price that Crigui would be willing to accept to acquire the 60000 units externally?

Accepted Answer

The answer of Crigui Music produces 60000 CDs on which...

Question 16

Pratt Company has old inventory on hand that cost $15000.Its scrap value is $20000.The inventory could be sold for $50000 if manufactured further at an additional cost of $15000.What should Pratt do?

Accepted Answer

Manufacturing further and selling it for $50000 would result in a profit of $20000 ($50000-$15000-$15000), which is higher than the inventory's scrap value or original cost. Choosing this option would result in maximizing profits.

Question 17

NF Toy Company is unsure of whether to sell its product assembled or unassembled.The unit cost of the unassembled product is $24 and NF Toy would sell it for $52.The cost to assemble the product is estimated at $17 per unit and the company believes the market would support a price of $68 on the assembled unit.What decision should NF Toy make?

Accepted Answer

The answer of NF Toy Company is unsure of whether...

Question 18

Tasty Bites produces corn chips.The cost of one batch is below: $$\begin{array} { l r } 
\text { Direct materials } & \$ 18 \
\text { Direct labor } & 13 \
\text { Variable overhead } & 11 \
\text { Fixed overhead } & 14
\end{array}$$ An outside supplier has offered to produce the corn chips for $30 per batch.How much will Tasty Bites save if it accepts the offer?

Accepted Answer

Tasty Bites will save the fixed overhead cost of $14 per batch if they accept the offer. The total cost of producing a batch internally is $56 ($18 + $13 + $11 + $14). The cost from the supplier is $30 per batch. The savings would be $56 - $30 = $26, but since fixed overhead is not saved, the actual savings is $12 ($26 - $14).

Question 19

Serene Dairy has four product lines: sour cream ice cream yogurt and butter.The total cost of producing the milk base for the products is $45000 which has been allocated based on the gallons of milk base used by each product.Results for July follow: $\begin{array} { l  } 
& \text {Sour Cream  }& \text { Ice Cream}& \text { Yogurt}& \text { Butter }& \text { Total}\
 \text {Units sold }&2,000&500&400&2,000&4,900\
 \text {revenue }&\$10,000&\$20,000&\$10,000&\$20,000&\$60,000\
 \text {Variable departmental costs }&6,000&13,000&4,200&4,800&28,000\
 \text {Fixed costs }&5,000&2,000&3,000&7,000&17,000\
 \text {Net income (loss) }&\$1,000&\$5,000&\$2,800&\$8,200&\$15,000\
\end{array}$
 How much are total joint costs of the products?

Accepted Answer

The total joint costs of the products are the costs that are common to all products before they are split into individual products. In this case, the joint cost is the cost of producing the milk base, which is $45,000.

Question 20

A company has a process that results in 24000 pounds of Product A that can be sold for $8 per pound.An alternative would be to process Product A further at a cost of $160000 and then sell it for $14 per pound.Should management sell Product A now or should Product A be processed further and then sold? What is the effect of the action?

Accepted Answer

The answer of A company has a process that results...

Quiz 13: Budgetary Control and Responsibility Accounting