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Question 1

Toronto’s Kitchens is approached by Ms. Tammy Wang, a new customer, to fulfill a large one -time -only special order for a product similar to one offered to regular customers. The accompanying per unit data apply for sales to regular customers. Toronto’s Kitchens has excess capacity. Ms. Wang wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit.
For Toronto’s Kitchens, what is the minimum acceptable price of this one -time -only special
order?

A. $900
B. $800
C. $850
D. $1,440
E. $930

Answer 1

C. 850

Question 2

Silver Engine Company manufactures part Z92 used in several of its engine models. Monthly production costs for 1,000 units are as shown. Silver Engine Company has the option of purchasing the part from an outside supplier at $61 per unit. It is estimated that all of the fixed overhead costs assigned to Z92 will remain if the company purchases Z92 from the outside supplier.

What is the maximum price that Silver Engine Company should be willing to pay the outside supplier?

A. $61 per Z92 part
B. $38 per Z92 part
C. $64 per Z92 part
D. $59 per Z92 part
E. $43 per Z92 part

Answer 2

D. $59 per Z92 part

Question 3

Laura Industries is considering replacing a machine that is presently used in its production process. The accompanying information is available.
Which of the information provided in the table is irrelevant to the replacement​ decision?

A. the original cost of the old machine
B. the current disposal value of the old machine
C. the remaining useful life of the old machine
D. the future disposal value of the replacement machine
E. the annual operating cost of the old machine

Answer 3

A. the original cost of the old machine

Question 4

Rainbow Company has a current production level of 20,000 units per month. Unit costs at this level are as shown. Current monthly sales are 18,000 units. Jim Company has contacted Rainbow Company about purchasing 1,500 units at $2.00 each. Current sales would NOT be affected by the one-time-only special order, and variable marketing/distribution costs would NOT be incurred on the special order.
What is Rainbow Company’s change in operating profits if the special order is accepted?

A. $1,500 increase in operating profits
B. $1,650 increase in operating profits
C. $400 decrease in operating profits
D. $400 increase in operating profits
E. $1,800 decrease in operating profits

Answer 4

B. $1,650 increase in operating profits

Question 5

Comics Plus has a current production level of 200,000 comics per month. Unit costs at this level are as shown. Current monthly sales are 180,000 units. Printers Ltd. has contacted Comics Plus about purchasing 15,000 units at $1.00 each. Current sales would not be affected by the special order, and variable marketing/distributing costs would not be incurred on the special order. What is Comics Plus’ change in profits if the order is accepted?

A. $7,500 increase
B. $6,000 decrease
C. $8,500 increase
D. $6,000 increase
E. $3,000 increase

Answer 5

A. $7,500 increase

Question 6

Toronto’s Kitchens is approached by Ms. Tammy Wang, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. The accompanying per unit data apply for sales to regular customers. Toronto’s Kitchens has excess capacity. Ms. Wang wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit. Other than price, what other item should Toronto’s Kitchens consider before accepting this one-time-only special order?

A. price is the only consideration
B. management stock options
C. reaction of existing customers to the lower price offered to Ms. Wang
D. demand for cherry cabinets
E. reaction of shareholders

Answer 6

C. reaction of existing customers to the lower price offered to Ms. Wang

Question 7

John’s 8-year-old Chevrolet Trail Blazer requires repairs estimated at $6,000 to make it roadworthy again. His wife Sherry suggested that he buy a 5-year-old used Jeep Grand Cherokee instead for $6,000 cash. Sherry estimated the following costs for the two cars.

What should John​ do? What are his savings in the first​ year?

A. Buy the Grand Cherokee; $280
B. Buy the Grand Cherokee; $8,100
C. Buy the Grand Cherokee; $180
D. Fix the Trail Blazer; $6,280
E. Fix the Trail Blazer; $3,180

Answer 7

C. Buy the Grand Cherokee; $180

Question 8

Silver Engine Company manufactures part Z92 used in several of its engine models. Monthly production costs for 1,000 units are as shown. Silver Engine Company has the option of purchasing the part from an outside supplier at $61 per unit. It is estimated that all of the fixed overhead costs assigned to Z92 will remain if the company purchases Z92 from the outside supplier. If Silver Engine Company purchases 1,000 Z92 parts from the outside supplier per month, then its monthly operating income will ___________.

A. decrease by $23,000
B. decrease by $40,000
C. increase by $3,000
D. decrease by $46,000
E. decrease by $2,000

Answer 8

E. decrease by $2,000

Question 9

Golden Engine Company manufactures part TE456 used in several of its engine models. Monthly production costs for 1,000 units are as shown. It is estimated that 10% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier. Golden Engine Company has the option of purchasing the part from an outside supplier at $85 per unit. If Golden Engine Company purchases 1,000 TE456 parts from the outside supplier per month, then its monthly operating income will ___________.

A. decrease by $5,000
B. decrease by $35,000
C. increase by $7,000
D. increase by $15,000
E. increase by $13,000

Answer 9

C. increase by $7,000

Question 10

Omar Corporation currently manufactures a subassembly for its main product. The variable costs per unit are $48 in addition to a $6 charge based on estimated selling expenses.
R-Corp has contacted Omar with an offer to sell them 5,000 of the subassemblies for $44.00 each. Omar will eliminate $60,000 of fixed overhead if it accepts the proposal.
What is the increase or decrease in profit from accepting the offer?

A. $50,000 decrease
B. $70,000 increase
C. $170,000 increase
D. $110,000 increase
E. $50,000 increase

Answer 10

D. $110,000 increase

Question 11

Audio Labs collected the following information on the cost of producing 20,000 speaker units:

Cartunes has offered to sell Audio 10,000 speakers for $56.00 each. Should Audio Labs make or buy the parts if the facilities remain idle when speakers are purchased?

A. buy, save $4.00 per unit
B. make, save $6.00 per unit
C. make, save $4.00 per unit
D. buy, save $16.00 per unit
E. make, save $2.00 per unit

Answer 11

C. make, save $4.00 per unit

Question 12

A product cost is composed of the following.

The product sells for $40 and a 15% commission is paid to a salesperson for every unit sold. Management accountants also estimate that storage cost per unit averages $0.75 per unit.
What is the full cost of the product?

A. $14.00
B. $22.00
C. $28.00
D. $28.75

Answer 12

D. $28.75

Question 13

Walace Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. Walace Manufacturing has excess capacity. The accompanying per unit data apply for sales to regular customers. What is the change in operating profits if the one-time-only special order for 1,000 units is accepted for $180 a unit by Walace?

A. $40,000 increase in operating profits
B. $75,000 decrease in operating profits
C. $10,000 decrease in operating profits
D. $10,000 increase in operating profits
E. $50,000 increase in operating profits

Answer 13

E. $50,000 increase in operating profits

Question 14

Golden Engine Company manufactures part TE456 used in several of its engine models. Monthly production costs for 1,000 units are as shown. It is estimated that 10% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier. Golden Engine Company has the option of purchasing the part from an outside supplier at $85 per unit.
If Golden Engine Company accepts the offer from the outside supplier, what is the monthly avoidable costs (costs that will no longer be incurred)?

A. $92,000
B. $100,000
C. $98,000
D. $50,000
E. $80,000

Answer 14

A. $92,000

Question 15

Flash City Inc. manufactures small flash drives and is considering raising the price by 75 cents a unit for the coming year. With a 75-cent price increase, demand is expected to fall by 7,000 units.
Would you recommend the 75c increase?

A. No, because demand decreased.
B. No, because the selling price increases.
C. Yes, because operating profits increase.
D. Yes, because contribution margin per unit increases.

Answer 15

C. Yes, because operating profits increase.

Question 16

Flash City Inc. manufactures small flash drives and is considering raising the price by 75 cents a unit for the coming year. With a 75-cent price increase, demand is expected to fall by 7,000 units.

If the price increase is​ implemented, operating profit is projected to​ ________.

A. increase by $35,100
B. decrease by $7,000
C. increase by $5,250
D. decrease by $5,250

Answer 16

A. increase by $35,100

Question 17

Golden Engine Company manufactures part TE456 used in several of its engine models. Monthly production costs for 1,000 units are as shown. It is estimated that 10% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier. Golden Engine Company has the option of purchasing the part from an outside supplier at $85 per unit.

What is the maximum price that Golden Engine Company should be willing to pay the outside supplier? Round to the nearest dollar.

A. $92 per TE456 part
B. $100 per TE456 part
C. $98 per TE456 part
D. $50 per TE456 part
E. $80 per TE456 part

Answer 17

A. $92 per TE456 part

Question 18

John’s 5-year-old Geo Prizm requires repairs estimated at $2,900 to make it road worthy again. His friend Julie suggested that he buy a 5-year-old used Honda Civic instead for $3,000 cash. Julie estimated the following costs for the two cars.

The cost NOT relevant for this decision is the​ ________.

A. annual operating costs of the Geo Prizm
B. acquisition cost of the Geo Prizm
C. annual operating costs of the Honda Civic
D. repairs to the Geo Prizm
E. acquisition cost of the Honda Civic

Answer 18

B. acquisition cost of the Geo Prizm

Question 19

Crandle Manufacturers Inc. is approached by a potential customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The company has excess capacity. The accompanying per unit data apply for sales to regular customers.

What is the full cost of the product per unit?

A. $690
B. $1,035
C. $430
D. $345

Answer 19

A. $690

Question 20

Northern Glass Manufacturing has a current production level of 200,000 glass jars per month. Unit costs at this level are as shown. Current monthly sales are 180,000 units. Canadian Hardware Ltd. has contacted Northern Glass Manufacturing about purchasing 15,000 units at $1.00 each. Current sales would not be affected by the special order, and variable marketing/distributing costs would not be incurred on the special order. What is Northern Glass Manufacturing’s change in profits if the order is accepted?

A. $1,800 decrease
B. $300 decrease
C. $4,800 decrease
D. $4,800 increase
E. $2,700 increase

Answer 20

E. $2,700 increase

Question 21

Central Medical Supply Inc., a manufacturer of medical testing equipment, has $240,000 worth of an obsolete line of testing equipment. The obsolete equipment can be adapted to fit another line of testing equipment at a cost of $65,000; the market value would then be $146,000. However, Tripac offered to purchase the obsolete equipment as is for $88,000.
What are the relevant figures above for management in their decision?

A. ($136,000- $65,000); ($88,000- 240,000)
B. ($146,000-$65,000); ($88,000- 0)
C. ($240,000+$65,000); ($88,000+ 240,000)
D. ($240,000+ $65,000); ($88,000- 0)
E. ($240,000+ $65,000); ($88,000 - 240,000)

Answer 21

B. ($146,000-$65,000); ($88,000- 0)

Question 22

Central Medical Supply Inc., a manufacturer of medical testing equipment, has $240,000 worth of an obsolete line of testing equipment. The obsolete equipment can be adapted to fit another line of testing equipment at a cost of $65,000; the market value would then be $146,000. However, Tripac offered to purchase the obsolete equipment as is for $88,000.

What is the opportunity cost associated with the adaptation of the equipment to another line of testing equipment, assuming Central accepts Tripac’s offer?

A. $81,000
B. $88,000
C. $63,000
D. $240,000
E. none of the above

Answer 22

A. $81,000

Question 23

Northwoods manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be​ $90 per​ table, consisting of​ 80% variable costs and​ 20% fixed costs. The company has surplus capacity available. It is​ Northwoods’ policy to add a​ 50% markup to full costs. Northwoods is invited to bid on a one​-time​-only special order to supply 110 rustic tables. What is the lowest price Northwoods should bid on this special​ order?

A. $7,920
B. $6,300
C. $10,800
D. $13,500
E. $9,000

Answer 23

A. $7,920

Question 24

John’s 8-year-old Chevrolet Trail Blazer requires repairs estimated at $6,000 to make it roadworthy again. His wife Sherry suggested that he buy a 5-year-old used Jeep Grand Cherokee instead for $6,000 cash. Sherry estimated the following costs for the two cars.

The cost NOT relevant for this decision is the​ ________.

A. annual operating costs of the Grand Cherokee
B. repairs to the Trail Blazer
C. acquisition cost of the Grand Cherokee
D. acquisition cost of the Trail Blazer
E. annual operating costs of the Trail Blazer

Answer 24

D. acquisition cost of the Trail Blazer

Question 25

First Choice has a plant capacity of 80,000 units per month. Unit costs at capacity are as shown. Current monthly sales are 78,000 units at $12.60 each. Computer Output Management has contacted First Image about purchasing 2,000 units at $12.00 each. Current sales would not be affected by the special order.

What is First Image’s change in profits if the order is accepted?

A. $2,600 decrease
B. $8,600 increase
C. $4,400 increase
D. $3,400 increase
E. $3,600 decrease

Answer 25

D. $3,400 increase

Question 26

Walace Manufacturing is approached by a European customer to fulfill a one​-time​-only special order for a product similar to one offered to domestic customers. Walace Manufacturing has excess capacity. The accompanying per unit data apply for sales to regular customers. What is the full cost of the product per​ unit?

A. $190
B. $140
C. $255
D. $95
E. $110

Answer 26

A. $190

Question 27

Walace Manufacturing is approached by a European customer to fulfill a one​-time​-only special order for a product similar to one offered to domestic customers. Walace Manufacturing has excess capacity. The accompanying per unit data apply for sales to regular customers. What is the contribution margin per unit?

A. $85
B. $155
C. $160
D. $195
E. $110

Answer 27

B. $155

Question 28

John’s 5-year-old Geo Prizm requires repairs estimated at $2,900 to make it road worthy again. His friend Julie suggested that he buy a 5-year-old used Honda Civic instead for $3,000 cash. Julie estimated the following costs for the two cars.

What should John​ do? What are his savings in the first​ year?

A. Fix the Geo Prizm; $2,820
B. Buy the Honda Civic; $180
C. Fix the Geo Prizm; $5,280
D. Buy the Honda Civic; $80
E. Buy the Honda Civic; $15,080

Answer 28

D. Buy the Honda Civic; $80

Question 29

Snapper Tool Company has a production capacity of 3,000 units per month, but current production is only 2,500 units. Total manufacturing costs are $60 per unit and marketing costs are $16 per unit. Doug Levy offers to purchase 500 units at $76 each for the next five months.

Should Snapper accept the one-time-only special order if only absorption-costing data are available?

A. No, since only the employees will benefit.
B. Yes, since operating profits will most likely increase.
C. Yes, good customer relations are essential.
D. No, the company will only break even.
E. Yes, because breaking even is better than having idle capacity.

Answer 29

B. Yes, since operating profits will most likely increase.

Question 30

Walace Manufacturing is approached by a European customer to fulfill a one​-time​-only special order for a product similar to one offered to domestic customers. Walace Manufacturing has excess capacity. The accompanying per unit data apply for sales to regular customers.

For Walace Manufacturing, what is the minimum acceptable price of this special order?

A. $140
B. $170
C. $130
D. $255
E. $240

Answer 30

C. $130

Question 31

Silver Engine Company manufactures part Z92 used in several of its engine models. Monthly production costs for 1,000 units are as shown. Silver Engine Company has the option of purchasing the part from an outside supplier at $61 pe unit. It is estimated that all of the fixed overhead costs assigned to Z92 will remain if the company purchases Z92 from the outside supplier.
If Silver Engine Company accepts the offer from the outside supplier, what are the total monthly avoidable costs (costs that will no longer be incurred)?

A. $21,000
B. $59,000
C. $15,000
D. $38,000
E. $64,000

Answer 31

B. $59,000