Question;31. 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.;32. Donnelly, a division of Dakota Enterprises;currently makes 100,000 units of a product that has created a number of;manufacturing problems. Donnelly's costs;follow.;Manufacturing costs;Variable;$420,000;Fixed;150,000;Allocated corporate;administrative cost;70,000;If;Donnelly were to discontinue production, fixed manufacturing costs would be;reduced by 80%. The relevant cost of;deciding whether the division should purchase the product from an outside;supplier is;A. $420,000.;B. $490,000.;C. $540,000.;D. $570,000.;E. $640,000.;33. 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.;34. Which of the following statements regarding;costs and decision making is correct?;A. Fixed costs must be considered only on a;per-unit basis.;B. Per-unit fixed cost amounts are valid only;for make-or-buy decisions.;C. Per-unit fixed costs can be misleading;because such amounts appear to behave as variable costs when, in actuality, the;amounts are related to fixed expenditures.;D. Sunk costs can be misleading in make-or-buy;decisions because these amounts appear to be relevant differential costs.;E. Opportunity costs should be ignored when;evaluating decision alternatives.;35. An architecture firm currently offers;services that appeal to both individuals and commercial clients. If the firm decides to discontinue services to;individuals because of ongoing losses, which of the following costs could the;company likely avoid?;A. Allocated corporate overhead.;B. Building depreciation.;C. Insurance.;D. Variable operating costs.;E. Monthly installment payments on;general-purpose, computer drafting equipment.;36. Occidental is contemplating dropping a;product because of ongoing losses. Costs;that would be relevant in this situation would include variable manufacturing;costs as well as;A. factory depreciation.;B. avoidable fixed costs.;C. unavoidable fixed costs.;D. allocated corporate administrative costs.;E. general corporate advertising.;37. Coastal Airlines has a significant presence;at the San Jose International Airport and therefore operates the Emerald Club;which is across from gate 36 in terminal 1.;The Emerald Club provides food and business services (e.g., data ports);for the company's frequent flyers.;Consider the following selected costs of Club operation;1. Receptionist;and supervisory salaries;2. Catering;3. Terminal depreciation (based on square;footage);4. Airport fees (computed as a percentage of;club revenue);5. Allocated Coastal administrative overhead;Management;is exploring whether to close the club and expand the seating area for gate;36. Which of the preceding expenses;would the airline classify as unavoidable?;A. 3.;B. 4.;C. 5.;D. 3, 5.;E. The correct answer is not listed.;38. The Shoe Department at the Baton Rouge;Department Store is being considered for closure. The following information relates to shoe;activity;Sales revenue;$350,000;Variable costs;Cost;of goods sold;280,000;Sales;commissions;30,000;Fixed operating costs;90,000;If;70% of the fixed operating costs are avoidable, should the Shoe Department be;closed?;A. Yes, Baton Rouge would be better off by;$23,000.;B. Yes, Baton Rouge would be better off by;$50,000.;C. No, Baton Rouge would be worse off by;$13,000.;D. No, Baton Rouge would be worse off by;$40,000.;E. None of the above.;39. Somerset Corporation is composed of five;divisions, and each division is allocated a share of Somerset overhead to make;divisional managers aware of the cost of running the corporate;headquarters. The following information;relates to the Metro Division;Sales;$7,500,000;Variable operating costs;5,100,000;Traceable fixed operating;costs;1,900,000;Allocated corporate;overhead;300,000;If;the Metro Division is closed, 100% of the traceable fixed operating costs can;be eliminated. What will be the impact;on Somerset'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 the above.;40. 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 net 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.;Use the following;to answer questions 41-42;HiTech;manufactures two products: Regular and Super. The results of operations for 20x1 follow.;Regular;Super;Total;Units;10,000;3,700;13,700;Sales;$240,000;$740,000;$980,000;Less: Cost of;goods sold;180,000;481,000;661,000;Gross margin;$ 60,000;$259,000;$319,000;Less: Selling;expenses;60,000;134,000;194,000;Operating;income;$ 0;$125,000;$125,000;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.;41. 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 the above.;42. 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 the above.;43. When deciding whether to sell a product at;the split-off point or process it further, joint costs are not usually;relevant because;A. such amounts do not help to increase sales;revenue.;B. such amounts only slightly increase a;company's sales margin.;C. such amounts are sunk and do not change with;the decision.;D. the sales revenue does not decrease to the;extent that it should, if compared with separable processing.;E. such amounts reflect opportunity costs.;44. Product costs incurred after the split-off;point in a joint processing environment are termed;A. separable processing costs.;B. joint product costs.;C. non-relevant costs.;D. scrap costs.;E. spoilage costs.;45. Foster Company is considering whether to sell;Retox at the split-off point or subject it to further processing and produce a;more refined product known as Retox-F. Consider;the following items;I.;The;selling price of Retox-F;II.;The;joint processing cost of Retox.;III.;The;separable cost of producing Retox-F.;Which;of the above items is (are) relevant to Foster's decision to process Retox into;Retox-F?;A. I only.;B. II only.;C. III only.;D. I and II.;E. I and III.;46. 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. 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.;47. India Corporation has $200,000 of joint;processing costs and is studying whether to process J and K beyond the;split-off point. Information about J and;K follows.;Product J;Product K;Tons produced;25,000;15,000;Separable;variable processing costs beyond split-off;$64,000;$100,000;Selling price per ton at;split-off;15;52;Selling price per ton after;additional processing;21;58;If;India desires to maximize total company income, what should the firm do with;regard to Products J and K?;Product J;Product K;A.;Sell at;split-off;Sell at;split-off;B.;Sell at;split-off;Process;beyond split-off;C.;Process;beyond split-off;Sell at;split-off;D.;Process beyond;split-off;Process;beyond split-off;E.;There is not;enough information to judge.;48. A company that is operating at full capacity;should emphasize those products and services that have the;A. lowest total per-unit costs.;B. highest contribution margin per unit.;C. highest contribution margin per unit of;scarce resource.;D. highest operating income.;E. highest sales volume.;49. A firm that decides to emphasize those goods;with the highest contribution margin per unit may have made an incorrect;decision when the company;A. is highly automated.;B. has excess capacity.;C. has capacity constraints in the form of;limited resources.;D. has a high fixed-cost structure.;E. has a high level of sunk costs.;50. 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.;51. Smith Manufacturing has 27,000 labor hours;available for producing X and Y.;Consider the following information;Product X;Product Y;Required labor time per;unit (hours);2;3;Maximum demand (units);6,000;8,000;Contribution margin per;unit;$5.00;$6.00;Contribution margin per;labor hour;$2.50;$2.00;If;Smith follows proper managerial accounting practices, which of the following;production schedules should the company set?;Product X;Product Y;A.;0 units;8,000 units;B.;1,500 units;8,000 units;C.;6,000 units;0 units;D.;6,000 units;5,000 units;E.;6,000 units;8,000 units;52. Bush Manufacturing has 31,000 labor hours;available for producing M and N.;Consider the following information;Product M;Product N;Required labor time per;unit (hours);2;3;Maximum demand (units);6,500;8,000;Contribution margin per;unit;$5.00;$5.70;Contribution margin per;labor hour;$2.50;$1.90;If;Bush 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 the above.;Use the;following to answer questions 53-54;Johnson Company;makes two products: Carpet Kleen and Floor Deodorizer. Operating information;from the previous year follows.;Carpet Kleen;Floor Deodorizer;Units;produced and sold;5,000;4,000;Machine hours;used;5,000;2,000;Sales price;per unit;$7;$10;Variable cost;per unit;$4;$8;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.;53. 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.;54. Assuming there is unlimited demand for both;products and Johnson has 10,000 machine hours available, how many units of each;product should be produced and sold?;Carpet Kleen;Floor Deodorizer;A.;0 units;0 units;B.;0 units;20,000;units;C.;5,000;units;10,000;units;D.;8,000;units;4,000;units;E.;10,000;units;0 units;55. A technique that is useful in exploring what;would happen if a key decision prediction or assumption proved wrong is termed;A. sensitivity analysis.;B. uncertainty analysis.;C. project analysis.;D. linear programming.;E. the theory of constraints.;56. Which of the following characteristics would;best explain the use of probabilities and expected values in a decision;analysis?;A. Limited resources.;B. Uncertainty.;C. Inflation.;D. Multiple products and services.;E. Production bottlenecks.;57. Consider the following statements about;relevant costing and activity-based costing;I.;The;concept of relevant costs and benefits cannot be used in conjunction;with an activity-based costing system.;II.;The;concept of relevant costs and benefits must be modified for use with an;activity-based costing system.;III.;Generally;speaking, the decision maker can better associate relevant costs with the;activities that drive them under an activity-based costing system than under a;conventional product-costing system.;Which;of the above statements is (are) true?;A. I only.;B. II only.;C. III only.;D. I and II.;E. II and III.;58. Linear programming would be used by decision;makers when there are;A. limited resources for labor.;B. scarce resources for machine hours.;C. scarce resources for both labor and machine;hours.;D. multiple scarce resources.;E. limited resources for material.;59. A constraint function in a linear-programming;problem might focus on;A. sales dollars.;B. labor hours.;C. variable costs.;D. fixed costs.;E. qualitative factors.;60. When using a graphical solution to a linear;programming problem, the optimal solution will lie in an area commonly known as;the;A. region of maximization.;B. feasible region.;C. objective region.;D. constraint region.;E. curvilinear region.;Use the;following to answer questions 61-62;Prudential;Corporation manufactures two products: X and Y. The company has 4,000 hours of machine time;available and can sell no more than 800 units of product X. Other pertinent data follow.;Product X;Product Y;Selling price;$8.00;$19.00;Variable cost;3.00;5.00;Fixed cost;3.50;6.25;Machine time;per unit;2 hours;3 hours;61. Which of the following is Prudential's;objective function?;A. Maximize Z = 2X + 3Y.;B. Maximize Z = 8X + 19Y.;C. Maximize Z = 5X + 14Y.;D. Maximize Z = 1.50X + 7.75Y.;E. Minimize Z = 6.50X + 11.25Y.
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