finance homework mcq

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126.What would the selling price per unit of
product N need to be after further processing in order for Payne Company to be
economically indifferent between selling N at the split-off point or processing
N further?

A.
$8.70

B.
$6.70

C.
$7.20

D.
$5.70

127.Marcell Corporation is considering two
alternatives that are code-named M and N. Costs associated with the
alternatives are listed below:

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Required:

a.
Which costs are relevant and which are not
relevant in the choice between these two alternatives?

b.
What is the differential cost
between the two alternatives?

.Costs associated with two
alternatives, code-named Q and R, being considered by Corniel Corporation are
listed below:

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Required:

a.
Which costs are relevant and which are not
relevant in the choice between these two alternatives?

b.
What is the differential cost
between the two alternatives?

129.The management of Therriault Corporation is
considering dropping product U51Y. Data from the company’s accounting system
appear below:

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All fixed expenses of the company are fully
allocated to products in the company’s accounting system. Further investigation
has revealed that $280,000 of the fixed manufacturing expenses and $140,000 of
the fixed selling and administrative expenses are avoidable if product U51Y is
discontinued.

Required:

What
would be the effect on the company’s overall net operating income if product
U51Y were dropped? Should the product be dropped? Show your work!

.Nutall Corporation is
considering dropping product N28X. Data from the company’s accounting system
appear below:

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All fixed expenses of the company are fully
allocated to products in the company’s accounting system. Further investigation
has revealed that $199,000 of the fixed manufacturing expenses and $114,000 of
the fixed selling and administrative expenses are avoidable if product N28X is
discontinued.

Required:

a.
According to the company’s
accounting system, what is the net operating income earned by product N28X?
Show your work!

b.
What would be the effect on the
company’s overall net operating income of dropping product N28X? Should the
product be dropped? Show your work!

131.The management of Rodarmel Corporation is
considering dropping product G91Q. Data from the company’s accounting system
appear below:

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All fixed expenses of the company
are fully allocated to products in the company’s accounting system. Further
investigation has revealed that $57,000 of the fixed manufacturing expenses and
$40,000 of the fixed selling and administrative expenses are avoidable if
product G91Q is discontinued.

Required:

a.
What is the net operating income
earned by product G91Q according to the company’s accounting system? Show your
work!

b.
What would be the effect on the
company’s overall net operating income of dropping product G91Q? Should the
product be dropped? Show your work!

.Mr. Earl Pearl, accountant for
Margie Knall Co., Inc., has prepared the following product-line income data:

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The following
additional information is available:

* The factory
rent of $1,500 assigned to Product C is avoidable if the product were dropped.

*
The company’s total depreciation
would not be affected by dropping C.

*
Eliminating Product C will reduce
the monthly utility bill from $1,500 to $800.

*
All supervisors’ salaries are
avoidable.

* If
Product C is discontinued, the maintenance department will be able to reduce
monthly expenses from $3,000 to $2,000.

*
Elimination of Product C will make
it possible to cut two persons from the administrative staff; their combined
salaries total $3,000.

Required:

Prepare an
analysis showing whether Product C should be eliminated.

.The
Hayes Company manufactures and sells several products, one of which is called a
slip differential. The company normally sells 30,000 units of the slip
differential each month. At this activity level, unit costs are:

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An
outside supplier has offered to produce the slip differentials for the Hayes
Company, and to ship them directly to the Hayes Company’s customers. This
arrangement would permit the Hayes Company to reduce its variable selling
expenses by one third (due to elimination of freight costs). The facilities now
being used to produce the slip differentials would be idle and fixed
manufacturing overhead would continue at 60 percent of its present level. The
total fixed selling expenses of the company would be unaffected by this
decision.

Required:

What is the
maximum acceptable price quotation for the slip differentials from the outside
supplier?

134.Bady Inc. makes a range of products. The
company’s predetermined overhead rate is $14 per direct labor-hour, which was
calculated using the following budgeted data:

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Component M3 is used in one of the company’s
products. The unit cost of the component according to the company’s cost
accounting system is determined as follows:

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An
outside supplier has offered to supply component M3 for $108 each. The outside
supplier is known for quality and reliability. Assume that direct labor is a
variable cost, variable manufacturing overhead is really driven by direct
labor-hours, and total fixed manufacturing overhead would not be affected by
this decision. Bady chronically has idle capacity.

Required:

Is the offer
from the outside supplier financially attractive? Why?

.Kramer Company makes 4,000
units per year of a part called an axial tap for use in one of its products.
Data concerning the unit production costs of the axial tap follow:

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An
outside supplier has offered to sell Kramer Company all of the axial taps it
requires. If Kramer Company decided to discontinue making the axial taps, 40%
of the above fixed manufacturing overhead costs could be avoided. Assume that
direct labor is a variable cost.

Required:

a.
Assume Kramer Company has no
alternative use for the facilities presently devoted to production of the axial
taps. If the outside supplier offers to sell the axial taps for $65 each,
should Kramer Company accept the offer? Fully support your answer with
appropriate calculations.

b. Assume
that Kramer Company could use the facilities presently devoted to production of
the axial taps to expand production of another product that would yield an
additional contribution margin of $80,000 annually. What is the maximum price
Kramer Company should be willing to pay the outside supplier for axial taps?

136.Masse Corporation uses part G18 in one of its
products. The company’s Accounting Department reports the following costs of
producing the 16,000 units of the part that are needed every year.

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An outside supplier has offered to make the part and
sell it to the company for $28.00 each. If this offer is accepted, the
supervisor’s salary and all of the variable costs, including direct labor, can
be avoided. The special equipment used to make the part was purchased many
years ago and has no salvage value or other use. The allocated general overhead
represents fixed costs of the entire company. If the outside supplier’s offer
were accepted, only $22,000 of these allocated general overhead costs would be
avoided. In addition, the space used to produce part G18 could be used to make
more of one of the company’s other products, generating an additional segment
margin of $22,000 per year for that product.

Required:

a.
Prepare a report that shows the
effect on the company’s total net operating income of buying part G18 from the
supplier rather than continuing to make it inside the company.

b.
Which alternative should the
company choose?

.Part
E43 is used in one of Ran Corporation’s products. The company’s Accounting
Department reports the following costs of producing the 12,000 units of the
part that are needed every year.

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An
outside supplier has offered to make the part and sell it to the company for
$14.70 each. If this offer is accepted, the supervisor’s salary and all of the
variable costs, including direct labor, can be avoided. The special equipment
used to make the part was purchased many years ago and has no salvage value or
other use. The allocated general overhead represents fixed costs of the entire
company. If the outside supplier’s offer were accepted, only $5,000 of these
allocated general overhead costs would be avoided.

Required:

a.
Prepare a report that shows the
effect on the company’s total net operating income of buying part E43 from the
supplier rather than continuing to make it inside the company.

b.
Which alternative should the
company choose?

138.Foulds Company makes 10,000 units per year of
a part it uses in the products it manufactures. The unit product cost of this
part is computed as follows:

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An
outside supplier has offered to sell the company all of these parts it needs
for $42.30 a unit. If the company accepts this offer, the facilities now being used
to make the part could be used to make more units of a product that is in high
demand. The additional contribution margin on this other product would be
$39,000 per year.

If
the part were purchased from the outside supplier, all of the direct labor cost
of the part would be avoided. However, $6.40 of the fixed manufacturing
overhead cost being applied to the part would continue even if the part were
purchased from the outside supplier. This fixed manufacturing overhead cost
would be applied to the company’s remaining products.

Required:

a.
How much of the unit product cost
of $47.90 is relevant in the decision of whether to make or buy the part?

b.
What is the net total dollar
advantage (disadvantage) of purchasing the part rather than making it?

c. What
is the maximum amount the company should be willing to pay an outside supplier
per unit for the part if the supplier commits to supplying all 10,000 units
required each year?

.Jerston Company has an annual
plant capacity of 3,000 units. Data concerning this product are given below:

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The company has received a special
order for 500 units at a selling price of $45 each. Regular sales would not be
affected, and sales commissions on the 500 units would be reduced by one-third.
This special order would have no impact on total fixed costs.

Required:

Determine
whether the company should accept the special order. Show all computations.

140.Nowlan Co. manufactures
and sells trophies for winners of athletic and other events. Its manufacturing
plant has the capacity to produce 11,000 trophies each month; current monthly
production is 8,800 trophies. The company normally charges $87 per trophy. Cost
data for the current level of production are shown below:

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The
company has just received a special one-time order for 500 trophies at $50
each. For this particular order, no variable selling and administrative costs
would be incurred. This order would also have no effect on fixed costs.

Required:

Should the
company accept this special order? Why?

.Holtrop Corporation has
received a request for a special order of 9,000 units of product Z74 for $46.50
each. The normal selling price of this product is $51.60 each, but the units
would need to be modified slightly for the customer. The normal unit product
cost of product Z74 is computed as follows:

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Direct
labor is a variable cost. The special order would have no effect on the
company’s total fixed manufacturing overhead costs. The customer would like
some modifications made to product Z74 that would increase the variable costs
by $6.20 per unit and that would require a one-time investment of $46,000 in
special molds that would have no salvage value. This special order would have
no effect on the company’s other sales. The company has ample spare capacity
for producing the special order.

Required:

Determine
the effect on the company’s total net operating income of accepting the special
order. Show your work!

142.Rothery Co. manufactures
and sells medals for winners of athletic and other events. Its manufacturing
plant has the capacity to produce 18,000 medals each month; current monthly
production is 17,100 medals. The company normally charges $88 per medal. Cost
data for the current level of production are shown below:

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The
company has just received a special one-time order for 600 medals at $73 each.
For this particular order, no variable selling and administrative costs would
be incurred. This order would also have no effect on fixed costs.

Required:

Should the
company accept this special order? Why?

.Humes Corporation makes a
range of products. The company’s predetermined overhead rate is $16 per direct
labor-hour, which was calculated using the following budgeted data:

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Management is considering a special order for 700
units of product J45K at $64 each. The normal selling price of product J45K is
$75 and the unit product cost is determined as follows:

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If
the special order were accepted, normal sales of this and other products would
not be affected. The company has ample excess capacity to produce the
additional units. Assume that direct labor is a variable cost, variable
manufacturing overhead is really driven by direct labor-hours, and total fixed
manufacturing overhead would not be affected by the special order.

Required:

If the special
order were accepted, what would be the impact on the company’s overall profit?

144.A customer has asked Twiner Corporation to supply
5,000 units of product D05, with some modifications, for $40.20 each. The
normal selling price of this product is $52.80 each. The normal unit product
cost of product D05 is computed as follows:

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Direct
labor is a variable cost. The special order would have no effect on the
company’s total fixed manufacturing overhead costs. The customer would like
some modifications made to product D05 that would increase the variable costs
by $3.50 per unit and that would require a one-time investment of $23,000 in
special molds that would have no salvage value. This special order would have
no effect on the company’s other sales. The company has ample spare capacity
for producing the special order.

Required:

Determine
the effect on the company’s total net operating income of accepting the special
order. Show your work!

.Jumonville Company produces a
single product. The cost of producing and selling a single unit of this product
at the company’s normal activity level of 70,000 units per month is as follows:

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The normal
selling price of the product is $56.70 per unit.

An
order has been received from an overseas customer for 2,000 units to be
delivered this month at a special discounted price. This order would have no
effect on the company’s normal sales and would not change the total amount of
the company’s fixed costs. The variable selling and administrative expense
would be $0.70 less per unit on this order than on normal sales.

Direct
labor is a variable cost in this company.

Required:

a.
Suppose there is ample idle
capacity to produce the units required by the overseas customer and the special
discounted price on the special order is $51.20 per unit. By how much would
this special order increase (decrease) the company’s net operating income for
the month?

b. Suppose
the company is already operating at capacity when the special order is received
from the overseas customer. What would be the opportunity cost of each unit
delivered to the overseas customer?

c. Suppose
there is not enough idle capacity to produce all of the units for the overseas
customer and accepting the special order would require cutting back on
production of 700 units for regular customers. What would be the minimum
acceptable price per unit for the special order?

146.Block Corporation makes three products that
use the current constraint, which is a particular type of machine. Data
concerning those products appear below:

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Required:

a. Rank
the products in order of their current profitability from the most profitable
to the least profitable. In other words, rank the products in the order in
which they should be emphasized. Show your work!

b. Assume
that sufficient constraint time is available to satisfy demand for all but the
least profitable product. Up to how much should the company be willing to pay
to acquire more of the constrained resource?

.Redner, Inc. produces three
products. Data concerning the selling prices and unit costs of the three
products appear below:

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Fixed costs are
applied to the products on the basis of direct labor hours.

Demand
for the three products exceeds the company’s productive capacity. The grinding
machine is the constraint, with only 2,400 minutes of grinding machine time
available this week.

Required:

a.
Given the grinding machine
constraint, which product should be emphasized? Support your answer with
appropriate calculations.

b. Assuming
that there is still unfilled demand for the product that the company should
emphasize in part (a) above, up to how much should the company be willing to
pay for an additional hour of grinding machine time?

148.Glunn Company makes
three products in a single facility. These products have the following unit
product costs:

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Additional data
concerning these products are listed below.

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The
mixing machines are potentially the constraint in the production facility. A
total of 24,200 minutes are available per month on these machines.

Direct
labor is a variable cost in this company.

Required:

a.
How many minutes of mixing machine
time would be required to satisfy demand for all three products?

b.
How much of each product should be
produced to maximize net operating income? (Round off to the nearest whole
unit.)

c.
Up to how much should the company
be willing to pay for one additional hour of mixing machine time if the company
has made the best use of the existing mixing machine capacity? (Round off to
the nearest whole cent.)

.Holvey
Company makes three products in a single facility. Data concerning these
products follow:

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The
mixing machines are potentially the constraint in the production facility. A
total of 6,300 minutes are available per month on these machines. Direct labor
is a variable cost in this company.

Required:

a. How
many minutes of mixing machine time would be required to satisfy demand for all
three products?

b.
How much of each product should be
produced to maximize net operating income? (Round off to the nearest whole
unit.)

c.
Up to how much should the company
be willing to pay for one additional hour of mixing machine time if the company
has made the best use of the existing mixing machine capacity? (Round off to
the nearest whole cent.)

150.The constraint at Vrana Inc. is an expensive
milling machine. The three products listed below use this constrained resource.

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Required:

a.
Rank the products in order of
their current profitability from the most profitable to the least profitable.
In other words, rank the products in the order in which they should be
emphasized. Show your work!

b. Assume
that sufficient constraint time is available to satisfy demand for all but the
least profitable product. Up to how much should the company be willing to pay
to acquire more of the constrained resource?

.Prevatte
Corporation purchases potatoes from farmers. The potatoes are then peeled,
producing two intermediate products-peels and depeeled spuds. The peels can
then be processed further to make a cocktail of organic nutrients. And the
depeeled spuds can be processed further to make frozen french fries. A batch of
potatoes costs $45 to buy from farmers and $11 to peel in the company’s plant.
The peels produced from a batch can be sold as is for animal feed for $27 or
processed further for $16 to make

the
cocktail of nutrients that are sold for $47. The depeeled spuds can be sold as
is for $38 or processed further for $27 to make frozen french fries that are
sold for $59.

Required:

a. Assuming
that no other costs are involved in processing potatoes or in selling products,
how much money does the company make from processing one batch of potatoes into
the cocktail of organic nutrients and frozen french fries? Show your work!

b.
Should each of the intermediate
products, peels and depeeled spuds, be sold as is or processed further into an
end product? Explain.

152.Spurrier Corporation
produces two intermediate products, A and B, from a common input. Intermediate
product A can be further processed into end product X. Intermediate product B
can be further processed into end product Y. The common input is purchased in
batches that cost $50 each and the cost of processing a batch to produce
intermediate products A and B is $15. Intermediate product A can be sold as is
for $28 or processed further for $18 to make end product X that is sold for
$43. Intermediate product B can be sold as is for $31 or processed further for
$24 to make end product Y that is sold for $68.

Required:

a. Assuming
that no other costs are involved in processing potatoes or in selling products,
how much money does the company make from processing one batch of the common
input into the end products X and Y? Show your work!

b.
Should each of the intermediate
products, A and B, be sold as is or processed further into an end product?
Explain.

.Harris Corp. manufactures
three products from a common input in a joint processing operation. Joint
processing costs up to the split-off point total $200,000 per year. The company
allocates these costs to the joint products on the basis of their total sales
value at the split-off point.

Each
product may be sold at the split-off point or processed further. The additional
processing costs and sales value after further processing for each product (on
an annual basis) are:

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The
“Further Processing Costs” consist of variable and avoidable fixed
costs.

Required:

Which
product or products should be sold at the split-off point, and which product or
products should be processed further? Show computations.

154.Iaukea Company makes two products from a
common input. Joint processing costs up to the split-off point total $49,600 a
year. The company allocates these costs to the joint products on the basis of

their
total sales values at the split-off point. Each product may be sold at the
split-off point or processed further. Data concerning these products appear
below:

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Required:

a.
What is the net monetary advantage (disadvantage)
of processing Product X beyond the split-off point?

b.
What is the net monetary advantage
(disadvantage) of processing Product Y beyond the split-off point?

c.
What is the minimum amount the
company should accept for Product X if it is to be sold at the split-off point?

d. What
is the minimum amount the company should accept for Product Y if it is to be
sold at the split-off point?

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