POST ACC211 Unit 7 Quiz C10 Decision Making

| June 14, 2016

Question
Question 1

Two alternatives, code-named X and Y, are under consideration at Afalava Corporation. Costs associated with the alternatives are listed below.

Are the materials costs and processing costs relevant in the choice between alternatives X and Y? (Ignore the equipment rental and occupancy costs in this question.)

Only materials costs are relevant

Only processing costs are relevant

Both materials costs and processing costs are relevant

Neither materials costs nor processing costs are relevant

Question 2

Ahsan Company makes 60,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows:

An outside supplier has offered to sell the company all of these parts it needs for $45.70 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $318,000 per year.

If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $3.50 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company’s remaining products.

How much of the unit product cost of $40.50 is relevant in the decision of whether to make or buy the part?

$40.50

$15.20

$27.90

$37.00

Question 3

The Tingey Company has 500 obsolete microcomputers that are carried in inventory at a total cost of $720,000. If these microcomputers are upgraded at a total cost of $100,000, they can be sold for a total of $160,000. As an alternative, the microcomputers can be sold in their present condition for $50,000.

Suppose the selling price of the upgraded computers has not been set. At what selling price per unit would the company be as well off upgrading the computers as if it just sold the computers in their present condition?

$100

$770

$300

$210

Question 4

The management of Freshwater Corporation is considering dropping product C11B. Data from the company’s accounting system appear below:

All fixed expenses of the company are fully allocated to products in the company’s accounting system. Further investigation has revealed that $211,000 of the fixed manufacturing expenses and $122,000 of the fixed selling and administrative expenses are avoidable if product C11B is discontinued.

According to the company’s accounting system, what is the net operating income earned by product C11B?

$74,000

$(521,000)

$(74,000)

$521,000

Question 5

Lusk Company produces and sells 15,000 units of Product A each month. The selling price of Product A is $20 per unit, and variable expenses are $14 per unit. A study has been made concerning whether Product A should be discontinued. The study shows that $70,000 of the $100,000 in fixed expenses charged to Product A would continue even if the product was discontinued. These data indicate that if Product A is discontinued, the company’s overall net operating income would:

decrease by $60,000 per month

increase by $10,000 per month

increase by $20,000 per month

decrease by $20,000 per month

Question 6

Peluso Company, a manufacturer of snowmobiles, is operating at 70% of plant capacity. Peluso’s plant manager is considering making the headlights now being purchased from an outside supplier for $11 each. The Peluso plant has idle equipment that could be used to manufacture the headlights. The design engineer estimates that each headlight requires $4 of direct materials, $3 of direct labor, and $6.00 of manufacturing overhead. Forty percent of the manufacturing overhead is a fixed cost that would be unaffected by this decision. A decision by Peluso Company to manufacture the headlights should result in a net gain (loss) for each headlight of:

$(2.00)

$1.60

$0.40

$2.80

Question 7

The Tingey Company has 500 obsolete microcomputers that are carried in inventory at a total cost of $720,000. If these microcomputers are upgraded at a total cost of $100,000, they can be sold for a total of $160,000. As an alternative, the microcomputers can be sold in their present condition for $50,000.

What is the net advantage or disadvantage to the company from upgrading the computers rather than selling them in their present condition?

$110,000 advantage

$660,000 disadvantage

$10,000 advantage

$60,000 advantage

Question 8

Two alternatives, code-named X and Y, are under consideration at Afalava Corporation. Costs associated with the alternatives are listed below.

What is the differential cost of Alternative Y over Alternative X, including all of the relevant costs?

$103,000

$39,000

$142,000

$122,500

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