Accounting Exam III

Question 1 of 1 Roberto, Inc. manufactures products A and B. Both products have a contribution margin ratio of 40%. What is the contribution margin per unit of the constrained resource for product B, if labor time is the constrained resource? $2 per minute $3 per minute $6 per minute $8 per minute

$3 per minute

Prairie, Inc. produces a single product. It has an annual capacity of 10,000 units, but currently uses only 80% of it. Each unit is sold for $50 and requires direct material worth $30 and direct labor worth $5. Manufacturing overhead cost is $10 per unit of which 70% is variable. What is Prairie's total incremental cost incurred to produce each unit? $30 $42 $35 $45

42

A general rule in relevant cost analysis is: A. variable costs are always relevant. B. fixed costs are always irrelevant. C. differential future costs and revenues are always relevant. D. depreciation is always irrelevant.

C

Relevant Cost

Costs that differ between alternatives and impact the decisions that are made.

Sunk Cost

Costs that have already been incurred and cannot be eliminated regardless of the alternative chosen.

True or False: Joint costs already incurred up to the split-off point are relevant in decisions concerning what to do from the split-off point onward.

False

Unavoidable Cost

Future costs that do not vary based on the alternative chosen.

True or False: If incremental revenue from further processing exceeds incremental costs from such processing incurred after the split-off point, it is profitable to continue processing such joint products after the split-off point.

True

Superware, Inc. produces multiple products out of a common input. Geratin is one such product, which has a sales value of $15,000 at the split-off point. Joint costs allocated to Geratin are $12,000. Sales value of Geratin increases to $25,000 after further processing, and this processing will cost $7,000. Should Geratin be processed further?

Yes, process further

3. Which of the following are valid reasons for eliminating a product line? I. The product line's contribution margin is negative. II. The product line's traceable fixed costs plus its allocated common corporate costs are less than its contribution margin. A. Only I B. Only II C. Both I and II D. Neither I nor II

a

A machine or a process that is a constraint is working _____

at full capacity

1. Spring Company has invested $20,000 in a project. Spring's discount rate is 12% and the project profitability index on the project is zero. Which of the following statements would be true? I. The net present value of the project is $20,000. II. The project's internal rate of return is equal to 12%. A. Only I. B. Only II. C. Both I and II. D. Neither I nor II.

b

3. (Ignore income taxes in this problem.) Charley has a typing service. He estimates that a new computer will result in increased cash inflow $1,600 in Year 1, $2,000 in Year 2 and $3,000 in Year 3. If Charley's required rate of return is 12%, the most that Charley would be willing to pay for the new computer would be: A. $4,623 B. $5,159 C. $3,294 D. $4,804

b

If some products must be cut back because of a constraint, the key to maximizing profits is to favor the products that provide the highest ______

contribution margin per unit of the constrained resource

2. (Ignore income taxes in this problem.) Sibble Corporation is considering the purchase of a machine that would cost $330,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $50,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $76,000. The company requires a minimum pretax return of 12% on all investment projects. The net present value of the proposed project is closest to: A. -$56,020 B. -$6,020 C. -$48,764 D. -$27,670

d

The opportunity cost of making a component part in a factory with no excess capacity is the: A. variable manufacturing cost of the component. B. fixed manufacturing cost of the component. C. total manufacturing cost of the component. D. net benefit foregone from the best alternative use of the capacity required.

d

_______ processed through the bottleneck is a way of relaxing a constraint because it is essentially free and might even yield additional cost savings.

reducing defective units

When a manager increases the capacity of the bottleneck, it is called _____ the constraint.

relaxing

High Roller Inc. is trying to decide whether to buy a private jet or to lease one. The finder's fee is incurred only if the private jet is bought. The finder's fee is a ________ cost for this decision.

relevant

Sheraton Corporation is trying to decide whether to buy new machinery or to upgrade its existing machinery to meet the increasing demand. The cost of the existing machine is a(n) ________ cost.

sunk

Good Buy is currently producing and marketing a product. The manager at Good Buy is considering a contract manufacturer's offer to supply the same product. Marketing costs involved in selling the product are ________ costs.

unavoidable

Prairie, Inc. produces one single product. It has an annual capacity of 10,000 units, but currently uses only 80% of it. Each unit is sold for $50 and requires direct material worth $30 and direct labor worth $5. Manufacturing overhead cost is $10 per unit of which 70% is variable. Should a special order to sell 1,000 units at $44 be accepted?

yes