Question;19. Allegiance;Inc. has $125,000 of inventory that suffered minor smoke damage from a fire in;the warehouse. The company can sell the goods "as is" for $45,000;alternatively, the goods can be cleaned and shipped to the firm's outlet center;at a cost of $23,000. There the goods could be sold for $80,000. What;alternative is more desirable and what is the relevant cost for that;alternative?;A. Sell "as is," $125,000.;B. Clean and ship to outlet;center, $23,000.;C. Clean and ship to outlet center, $103,000.;D. Clean and ship to outlet center, $148,000.;E. Neither alternative is desirable, as both produce a loss for the firm.;20. In early July, Mike Gottfried;purchased a $70 ticket to the December 15 game of the Chicago Titans. (The;Titans belong to the Midwest Football League and play their games outdoors on;the shore of Lake Michigan.) Parking for the game was expected to cost;approximately $22, and Gottfried would probably spend another $15 for a;souvenir program and food. It is now December 14. The Titans were having a;miserable season and the temperature was expected to peak at 5 degrees on game;day. Mike therefore decided to skip the game and took his wife to the movies;with tickets and dinner costing $50. The sunk cost associated with this decision;situation is;A. $20.;B. $50.;C. $70.;D. $107.;E. some other amount.;21. In early July, Jim Lopez purchased;a $70 ticket to the December 15 game of the Chicago Titans. (The Titans belong;to the Midwest Football League and play their games outdoors on the shore of;Lake Michigan.) Parking for the game was expected to cost approximately $22;and Lopez would probably spend another $15 for a souvenir program and food. It;is now December 14. The Titans were having a miserable season and the;temperature was expected to peak at 5 degrees on game day. Jim is thinking;about skipping the game and taking his wife to the movies and dinner, at a cost;of $50. The amount of sunk cost that should influence Jim's decision to spend;some time with his wife is;A. $0.;B. $20.;C. $50.;D. $70.;E. some other amount.;25. Susan is contemplating a job offer;with an advertising agency where she will make $54,000 in her first year of;employment. Alternatively, Susan can begin to work in her father's business;where she will earn an annual salary of $38,000. If Susan decides to work with;her father, the opportunity cost would be;A. $0.;B. $38,000.;C. $54,000.;D. $92,000.;E. irrelevant in deciding which job offer to accept.;29. Two months ago, Victory;Corporation purchased 4,500 pounds of Hydrol, paying $15,300. The demand for;this product has been very strong since the acquisition, with the market price;jumping to $4.05 per pound. (Victory can buy or sell Hydrol at this price.) The;company recently received a special-order inquiry, one that would require the;use of 4,200 pounds of Hydrol. Which of the following is (are) relevant in;deciding whether to accept the special order?;A. The 300-pound remaining inventory of Hydrol.;B. The $4.05 market price.;C. The $3.40 purchase price.;D. 4,500 pounds of Hydrol.;E. Two or more of the above factors are relevant.;31. Mueller has been approached about;providing a new service to its clients. The company will bill clients $140 per;hour, the related hourly variable and fixed operating costs will be $75 and;$18, respectively. If all employees are currently working at full capacity on;other client matters, the per-hour opportunity cost of being unable to provide;this new service is;A. $0.;B. $47.;C. $65.;D. $93.;E. $140.;32. Snyder;Inc., which has excess capacity, received a special order for 4,000 units at a;price of $15 per unit. Currently, production and sales are anticipated to be;10,000 units without considering the special order. Budget information for the;current year follows.;Cost of goods sold includes $30,000 of fixed manufacturing cost. If the special;order is accepted, the company's income will;A. increase by $2,000.;B. decrease by $2,000.;C. increase by $14,000.;D. decrease by $14,000.;E. change by some other amount.;33. S'Round Sound, Inc. reported the;following results from the sale of 24,000 units of IT-54;Rhythm Company has offered to purchase 3,000 IT-54s at $16 each. Sound has;available capacity, and the president is in favor of accepting the order. She;feels it would be profitable because no variable selling costs will be;incurred. The plant manager is opposed because the "full cost" of;production is $17. Which of the following correctly notes the change in income;if the special order is accepted?;A. $3,000 decrease.;B. $3,000 increase.;C. $12,000 decrease.;D. $12,000 increase.;E. None of these.;34. CompuTronics, a manufacturer of;computer peripherals, has excess capacity. The company's Utah plant has the;following per-unit cost structure for item no. 89;The traceable fixed administrative cost was incurred at the Utah plant, in;contrast, the allocated administrative cost represents a "fair share;of CompuTronics' corporate overhead. Utah has been presented with a special;order of 5,000 units of item no. 89 on which no selling cost will be incurred.;The proper relevant cost in deciding whether to accept this special order would;be;A. $40.;B. $59.;C. $61.;D. $80.;E. some other amount.;35. Gorski Corporation manufactures;parts that are used in the production of washers and dryers. The following;costs are associated with part no. 65;The company received a special-order inquiry from an appliance manufacturer in;Spain for 15,000 units of part no. 65. Only $3 of fixed manufacturing will be;incurred on the order, and the variable selling costs per unit will amount to;only $5. Since Gorski has excess capacity, the minimum price that Gorski should;charge the Spanish manufacturer is;A. $96.;B. $99.;C. $105.;D. $108.;E. some other amount.;37. Torrey Pines is studying whether;to outsource its Human Resources (H/R) activities. Salaried professionals who;earn $390,000 would be terminated, in contrast, administrative assistants who;earn $120,000 would be transferred elsewhere in the organization. Miscellaneous;departmental overhead (e.g., supplies, copy charges, overnight delivery) is;expected to decrease by $30,000, and $25,000 of corporate overhead, previously;allocated to Human Resources, would be picked up by other departments. If;Torrey Pines can secure needed H/R services locally for $410,000, how much;would the company benefit by outsourcing?;A. $10,000.;B. $35,000.;C. $130,000.;D. $155,000.;E. Nothing, as it would be cheaper to keep the department open.;38. Song, a division of Carolina;Enterprises, currently makes 100,000 units of a product that has created a;number of manufacturing problems. Song's costs follow.;If Song were to discontinue production, fixed manufacturing costs would be;reduced by 70%. The relevant cost of deciding whether the division should;purchase the product from an outside supplier is;A. $540,000.;B. $594,000.;C. $666,000.;D. $720,000.;E. $726,000.;39. Maddox, a division of Stanley;Enterprises, currently performs computer services for various departments of;the firm. One of the services has created a number of operating problems, and;management is exploring whether to outsource the service to a consultant.;Traceable variable and fixed operating costs total $80,000 and $25,000;respectively, in addition to $18,000 of corporate administrative overhead;allocated from Stanley. If Maddox were to use the outside consultant, fixed;operating costs would be reduced by 70%. The irrelevant costs in Maddox's;outsourcing decision total;A. $17,500.;B. $18,000.;C. $25,000.;D. $25,500.;E. some other amount.;44. The Shoe Department at the El Paso;Department Store is being considered for closure. The following information;relates to shoe activity;If 70% of the fixed operating costs are avoidable, should the Shoe Department;be closed?;A. Yes, El Paso would be;better off by $23,000.;B. Yes, El Paso would be better off by $50,000.;C. No, El Paso would be worse off by $13,000.;D. No, El Paso would be worse off by $40,000.;E. None of these.;45. Summers Corporation is composed of;five divisions. Each division is allocated a share of Summers's overhead to;make divisional managers aware of the cost of running the corporate;headquarters. The following information relates to the Metro Division;If the Metro Division is closed, 100% of the traceable fixed operating costs;can be eliminated. What will be the impact on Summers's overall profitability;if the Metro Division is closed?;A. Decrease by $200,000.;B. Decrease by $500,000.;C. Decrease by $2,100,000.;D. Decrease by $2,400,000.;E. None of these.;46. Ortega;Interiors provides design services to residential and commercial clients. The;residential services produce a contribution margin of $450,000 and have;traceable fixed operating costs of $480,000. Management is studying whether to;drop the residential operation. If closed, the fixed operating costs will fall;by $370,000 and Ortega's income will;A. increase by $30,000.;B. increase by $80,000.;C. increase by $340,000.;D. decrease by $80,000.;E. decrease by $340,000.;HiTech;manufactures two products: Regular and Super. The results of operations for;20x1 follow.;Fixed manufacturing costs included in cost of goods sold amount to $3 per unit;for Regular and $20 per unit for Super. Variable selling expenses are $4 per;unit for Regular and $20 per unit for Super, remaining selling amounts are;fixed.;48. HiTech;wants to drop the Regular product line. If the line is dropped, company-wide;fixed manufacturing costs would fall by 10% because there is no alternative use;of the facilities. What would be the impact on operating income if Regular is;discontinued?;A. $0.;B. $10,400 increase.;C. $20,000 increase.;D. $39,600 decrease.;E. None of these.;49. Disregard;the information in the previous question. If HiTech eliminates Regular and uses;the available capacity to produce and sell an additional 1,500 units of Super;what would be the impact on operating income?;A. $28,000 increase;B. $45,000 increase;C. $55,000 increase;D. $85,000 increase;E. None of these.;54. Lido;manufactures A and B from a joint process (cost = $80,000). Five thousand;pounds of A can be sold at split-off for $20 per pound or processed further at;an additional cost of $20,000 and then sold for $25 per pound. If Lido decides;to process A beyond the split-off point, operating income will;A. increase by $10,000.;B. increase by $20,000.;C. decrease by $10,000.;D. decrease by $20,000.;E. increase by $5,000.;55. Lido;manufactures A and B from a joint process (cost = $80,000). Ten thousand pounds;of B can be sold at split-off for $15 per pound or processed further at an;additional cost of $20,000 and later sold for $16. If Lido decides to process B;beyond the split-off point, operating income will;A. increase by $10,000.;B. increase by $20,000.;C. decrease by $10,000.;D. decrease by $20,000.;E. decrease by $58,000.;Laredo;manufactures Nuts and Bolts from a joint process (cost = $80,000). Five;thousand pounds of Nuts can be sold at split-off for $20 per pound, ten;thousand pounds of Bolts can be sold at split-off for $15 per pound. For;product costing purposes Laredo allocates joint costs using the relative sales;value method.;56. The;amount of joint cost allocated to Nuts would be;A. $32,000.;B. $40,000.;C. $48,000.;D. $60,000.;E. $80,000.;57. The;amount of joint cost allocated to Bolts would be;A. $32,000.;B. $40,000.;C. $48,000.;D. $60,000.;E. $80,000.;58. The;amount of joint cost allocated to Nuts and Bolts, respectively, would be;A. $32,000 and $40,000.;B. $32,000 and $48,000.;C. $48,000 and $32,000.;D. $40,000 and $32,000.;E. $40,000 and $40,000.;62. Wright;Enterprises, which produces various goods, has limited processing hours at its;manufacturing plant. The following data apply to product no. 607;Sales price per unit: $9.60;Variable cost per unit: $6.20;Process time per unit: 4 hours;Management is now studying whether to devote the firm's limited hours to;product no. 607 or to other products. What key dollar amount should management;focus on when determining no. 607's "value" to the firm and deciding;the best course of action to follow?;A. $0.85.;B. $2.40.;C. $3.40.;D. $6.20.;E. $9.60.;Smythe;Manufacturing has 27,000 labor hours available for producing X and Y. Consider;the following information;63. If Smythe follows proper managerial accounting practices;how many units of Product X should it produce?;A. 5,000.;B. 1,500.;C. 8,000.;D. 4,500.;E. 6,000.;64. If Smythe follows proper;managerial accounting practices, how many units of Product Y should it;produce?;A. 8,000.;B. 4,500.;C. 6,000.;D. 5,000.;E. 1,500.;66. Buchnell;Manufacturing has 31,000 labor hours available for producing M and N. Consider;the following information;If Buchnell follows proper managerial accounting practices in terms of setting;a production schedule, how much contribution margin would the company expect to;generate?;A. $31,450.;B. $63,100.;C. $66,700.;D. $78,100.;E. None of these.;Johnstone;Company makes two products: Carpet Kleen and Floor Deodorizer. Operating;information from the previous year follows.;Fixed costs of $20,000 per year are presently allocated equally between both;products. If the product mix were to change, total fixed costs would remain the;same.;67. The;contribution margin per machine hour for Floor Deodorizer is;A. $0.25.;B. $2.00.;C. $4.00.;D. $5.00.;E. $20.00.
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