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1. The management of Austin Corporation is conside...

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1. The management of Austin Corporation is considering dropping product R97C. Data from the company's accounting system appear below: Sales....................................$130,000 Variable expenses..........................56,000 Fixed manufacturing expenses...............49,000 Fixed selling and administrative expenses..35,000 In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $34,000 of the fixed manufacturing expenses and $20,000 of the fixed selling and administrative expenses are avoidable if product R97C is discontinued. What would be the effect on the company's overall net operating income if product R97C were dropped? A) Overall net operating income would increase by $20,000. B) Overall net operating income would increase by $10,000. C) Overall net operating income would decrease by $20,000. D) Overall net operating income would decrease by $10,000. 2. Libbee Corporation is presently making part I50 that is used in one of its products. A total of 8,000 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity: Direct materials..................................$3.70 per unit Direct Labor.......................................1.00 " Variable overhead..................................6.90 " Supervisor's salary................................8.80 " Depreciation of special equipment..................3.30 " Allocated general overhead.........................1.60 " An outside supplier has offered to produce and sell the part to the company for $24.50 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, none of which would be avoided if the part were purchased instead of produced internally. If management decides to buy part I50 from the outside supplier rather than to continue making the part, what would be the annual impact on the company's overall net operating income? A) Net operating income would decline by $6,400 per year. B) Net operating income would decline by $32,800 per year. C) Net operating income would increase by $32,800 per year. D) Net operating income would increase by $6,400 per year. 3. Scales Corporation has received a request for a special order of 6,000 units of product Y45 for $13.70 each. Product Y45's unit product cost is $11.50, determined as follows: Direct materials..........................$2.50 Direct labor..............................1.90 Variable manufacturing overhead...........2.30 Fixed manufacturing overhead..............4.80 Unit product cost....................$11.40 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 modifications made to product Y45 that would increase the variable costs by $8.10 per unit and that would require an investment of $20,000 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. If the special order is accepted, the company's overall net operating income would increase (decrease) by: A) ($26,600) B) $13,200 C) ($55,400) D) ($21,300)

 

Paper#2292 | Written in 18-Jul-2015

Price : $25
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