202 Ch. 7 Quiz

Abel Company produces three versions of baseball bats: wood, aluminum, and hard rubber. A condensed segmented income statement for a recent period follows: Wood Aluminum Hard Rubber Total Sales $500,000 $200,000 $65,000 $765,000 Variable expenses 325,000 140,000 58,000 523,000 Contribution margin 175,000 60,000 7,000 242,000 Fixed expenses 75,000 35,000 22,000 132,000 Net income (loss) $100,000 $ 25,000 $(15,000) $110,000 Assume none of the fixed expenses for the hard rubber line are avoidable. What will be total net income if the line is dropped? Question options: $125,000 $103,000 $105,000 $140,000

$103,000

Chapman Company manufactures widgets. Embree Company has approached Chapman with a proposal to sell the company widgets at a price of $125,000 for 100,000 units. Chapman is currently making these components in its own factory. The following costs are associated with this part of the process when 100,000 units are produced: Direct materials $ 46,500 Direct labor 43,500 Manufacturing overhead 60,000 Total $150,000 The manufacturing overhead consists of $24,000 of costs that will be eliminated if the components are no longer produced by Chapman. From Chapman's point of view, how much is the incremental cost or savings if the widgets are bought instead of made? Question options: $25,000 incremental savings $11,000 incremental cost $11,000 incremental savings $25,000 incremental cost

$11,000 incremental cost

Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $300,000 $600,000 Accumulated Depreciation 90,000 -0- Remaining useful life 10 years -0- Useful life -0- 10 years Annual operating costs $240,000 $180,600 If the old machine is replaced, it can be sold for $24,000. The net advantage (disadvantage) of replacing the old machine is Question options: $18,000 $24,000 $(6,000) $(60,000)

$18,000

Clemente Inc. incurs the following costs to produce 10,000 units of a subcomponent: Direct materials $8,400 Direct labor 11,250 Variable overhead 12,600 Fixed overhead 16,200 An outside supplier has offered to sell Clemente the subcomponent for $2.85 a unit. If Clemente accepts the offer, it could use the production capacity to produce another product that would generate additional income of $3,600. The increase (decrease) in net income from accepting the offer would be Question options: $150. $7,350. $(150). $(3,600).

$7,350.

Which of the following is a true statement about cost behaviors in incremental analysis? 1. Fixed costs will not change between alternatives. 2. Fixed costs may change between alternatives. 3. Variable costs will always change between alternatives. Question options: 1 2 3 2 and 3

2

A company is deciding whether or not to replace some old equipment with new equipment. Which of the following is not considered in the incremental analysis? Question options: Annual operating cost of the new equipment Annual operating cost of the old equipment Net cost of the new equipment Book value of the old equipment

Book value of the old equipment

A company is contemplating the acceptance of a special order. The order would not affect regular sales and could be filled without exceeding plant capacity. However, a new stamping machine would have to be purchased in order to stamp the customer's name on the product. Which of the following is likely? Question options: Total variable costs will be irrelevant. Only variable costs will be relevant. Only fixed costs will be relevant. Both variable and fixed costs will be relevant.

Both variable and fixed costs will be relevant.

Baden Company manufactures a product with a unit variable cost of $100 and a unit sales price of $176. Fixed manufacturing costs were $480,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at $140 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows: Question options: Income would decrease by $8,000. Income would increase by $8,000. Income would increase by $140,000. Income would increase by $40,000.

Income would increase by $40,000.

Which of the following will always be a relevant cost? Question options: Sunk cost Fixed cost Variable cost Opportunity cost

Opportunity cost

A company is considering eliminating a product line. The fixed costs currently allocated to the product line will be allocated to other product lines upon discontinuance. If the product line is discontinued, Question options: total net income will increase by the amount of the product line's fixed costs. total net income will decrease by the amount of the product line's fixed costs. the contribution margin of the product line will indicate the net income increase or decrease. the company's total fixed costs will decrease.

the contribution margin of the product line will indicate the net income increase or decrease.