Chapter 12 practice quiz

Ouzts Corporation is considering Alternative A and Alternative B. Costs associated with the alternatives are listed below: Alternative A Alternative B Materials costs$51,000 $68,900 Processing costs$46,900 $46,900 Equipment rental$16,300 $16,300 Occupancy costs$18,500 $27,500 What is the financial advantage (disadvantage) of Alternative B over Alternative A? Multiple Choice $132,700 $(26,900) $159,600 $(146,150)

$(26,900)

Two alternatives, code-named X and Y, are under consideration at Guyer Corporation. Costs associated with the alternatives are listed below. Alternative X Alternative Y Materials costs$56,000 $81,800 Processing costs$59,300 $59,300 Equipment rental$22,800 $22,800 Occupancy costs$21,400 $32,000 What is the financial advantage (disadvantage) of Alternative Y over Alternative X? Multiple Choice $(177,700) $159,500 $195,900 $(36,400)

$(36,400)

Two products, QI and VH, emerge from a joint process. Product QI has been allocated $21,300 of the total joint costs of $42,000. A total of 2,800 units of product QI are produced from the joint process. Product QI can be sold at the split-off point for $11 per unit, or it can be processed further for an additional total cost of $10,800 and then sold for $13 per unit. If product QI is processed further and sold, what would be the financial advantage (disadvantage) for the company compared with sale in its unprocessed form directly after the split-off point? Multiple Choice ($29,700) $(5,200) $25,600 ($16,100)

$(5,200)

The Cook Corporation has two divisions--East and West. The divisions have the following revenues and expenses: East-West Sales$603,000 $506,000 Variable costs 231,000 300,000 Traceable fixed costs 151,500 192,000 Allocated common corporate costs 128,600 156,000 Net operating income (loss)$91,900 $(142,000) The management of Cook is considering the elimination of the West Division. If the West Division were eliminated, its traceable fixed costs could be avoided. Total common corporate costs would be unaffected by this decision. Given these data, the elimination of the West Division would result in an overall company net operating income (loss) of: Multiple Choice $91,900 $(64,100) $(142,000) $(50,100)

$(64,100)

A customer has requested that Lewelling Corporation fill a special order for 2,300 units of product S47 for $28 a unit. While the product would be modified slightly for the special order, product S47's normal unit product cost is $21.80: Direct materials$5.90 Direct labor 5.00 Variable manufacturing overhead 3.00 Fixed manufacturing overhead 7.90 Unit product cost$21.80 Assume that 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 S47 that would increase the variable costs by $1.50 per unit and that would require an investment of $13,000.00 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. The annual financial advantage (disadvantage) for the company as a result of accepting this special order should be: Multiple Choice $15,980 ($12,700) $13,200 ($2,100)

$15,980

Supler Corporation produces a part used in the manufacture of one of its products. The unit product cost is $21, computed as follows: Direct materials$8 Direct labor 5 Variable manufacturing overhead 3 Fixed manufacturing overhead 5 Unit product cost$21 An outside supplier has offered to provide the annual requirement of 2,900 of the parts for only $16 each. The company estimates that 80% of the fixed manufacturing overhead cost above could be eliminated if the parts are purchased from the outside supplier. Assume that direct labor is an avoidable cost in this decision. Based on these data, the financial advantage (disadvantage) of purchasing the parts from the outside supplier would be: Multiple Choice ($3) per unit on average $3 per unit on average $4 per unit on average ($5) per unit on average

$4 per unit on average

A complete income statement need not be prepared as part of a differential cost analysis t/f

true

A cost that can be avoided by choosing one alternative over another is relevant for decision purposes t/f

true

The management of Bonga Corporation is considering dropping product D74F. Data from the company's accounting system for this product for last year appear below: Sales$918,000 Variable expenses$403,000 Fixed manufacturing expenses$332,000 Fixed selling and administrative expenses$239,000 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $205,000 of the fixed manufacturing expenses and $116,000 of the fixed selling and administrative expenses are avoidable if product D74F is discontinued. What would be the financial advantage (disadvantage) from dropping product D74F? Multiple Choice $194,000 $56,000 ($56,000) ($194,000)

($194,000)

The SP Corporation makes 48,000 motors to be used in the production of its sewing machines. The average cost per motor at this level of activity is: Direct materials$10.70 Direct labor$9.70 Variable manufacturing overhead$4.05 Fixed manufacturing overhead$5.00 An outside supplier recently began producing a comparable motor that could be used in the sewing machine. The price offered to SP Corporation for this motor is $27.55. If SP Corporation decides not to make the motors, there would be no other use for the production facilities and none of the fixed manufacturing overhead cost could be avoided. Direct labor is a variable cost in this company. The annual financial advantage (disadvantage) for the company as a result of making the motors rather than buying them from the outside supplier would be: Multiple Choice ($91,200) $343,200 148,800 $240,000

148,800

Avoidable costs are irrelevant costs in decisions. t/f

false

Consistency demands that a cost that is relevant in one decision be regarded as relevant in other decisions as well. t/f

false

Future costs that do differ among the alternatives are not relevant in a decision. t/f

false

In a decision to drop a product, the product should be charged for rent in proportion to the space it occupies even if the space has no alternative use and the rental payment is unavoidable t/f

false