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51.      Goldwater Company manufactures a part for its production cycle. The costs per unit for 10,000 units of this part are as follows:

          Direct materials           $20
          Direct labor           15
          Variable factory overhead           16
          Fixed factory overhead            10
          Total costs           $61

     The fixed factory overhead costs are unavoidable. Assume that Goldwater Company can buy 10,000 units of the part from another producer for $56 each. The current facilities could be used to make 10,000 units of a product that has a contribution margin of $20 per unit. No additional fixed costs would be incurred. Goldwater Company should:

     a.     make the new product and buy the part to earn an extra $5 per unit contribution to profit
     b.     continue to make the part to earn an extra $5 per unit contribution to profit
     c.     continue to make the part to earn an extra $15 per unit contribution to profit
     d.     make the new product and buy the part to earn an extra $15 per unit contribution to profit

     

52.     Super Cooper Company currently produces a key part at a total cost of $210,000. Variable costs are $170,000. Of the fixed cost, $10,000 relate specifically to this part. The remaining fixed costs are unavoidable.
     
     Another manufacturer has offered to supply the part for $190,000. The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of $30,000. Alternately, the facilities could be rented out at $60,000.      Given all of these alternatives,


 

     a.     $170,000
     b.     $180,000
     c.     $190,000
     d.     $130,000

     

53.     Burt Company currently produces 10,000 units of a key part at a total cost of $210,000. Variable costs are $170,000. Of the fixed cost, $10,000 relate specifically to this part. The remaining fixed costs are unavoidable.
     
     Another manufacturer has offered to supply the part for $190 per unit. The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of $25,000. Alternately, the facilities could be rented out at $55,000.      


 

     a.     ($20,000)
     b.     $55,000
     c.     $25,000
     d.     ($10,000)

54.     Deuce Company currently produces 10,000 units of a key part at a total cost of $512,000. Variable costs are $300,000. Of the fixed cost, $140,000 relate specifically to this part. The remaining fixed costs are unavoidable.
     
     Another manufacturer has offered to supply the part for $48 per unit. The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of $30,000. Alternately, the facilities could be rented out at $60,000.      Given all of these alternatives,


 

a.     $30
b.     $48
c.     $42
d.     $44

     

55.     Three Point Company currently produces 10,000 units of a key part at a total cost of $512,000. Variable costs are $300,000. Of the fixed cost, $140,000 relate specifically to this part. The remaining fixed costs are unavoidable.
     
     Another manufacturer has offered to supply the part for $48 per unit. The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of $55,000. Alternately, the facilities could be rented out at $63,000.      


 

a.     $63,000
b.     $55,000
c.     $480,000
     d.     None of these answers is correct.

56.      Hoopster Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 5,000 units of this part are as follows:

          Direct materials           $108,000
          Direct labor           156,000
          Variable factory overhead           72,000
          Fixed factory overhead           168,000
          Total costs           $504,000

     Of the fixed factory overhead costs, $72,000 are avoidable.      Knight Company has offered to sell 5,000 units of the same part to Hoopster for $86.40 per unit. Assuming there is no other use for the facilities, Hoopster Company should:

     a.     make the part to save $14.40 per unit
     b.     buy the part to save $14.40 per unit
     c.     buy the part to save the company $72,000
     d.     make the part to save $4.80 per unit



57.     Crenshaw Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 5,000 units of this part are as follows:

          Direct materials           $108,000
          Direct labor           156,000
          Variable factory overhead           72,000
          Fixed factory overhead           168,000
          Total costs           $504,000

     Of the fixed factory overhead costs, $72,000 is avoidable. Assuming no other use of their facilities, the highest price that Crenshaw Company should be willing to pay for 5,000 units of the part is:

     a.     $504,000     
     b.     $336,000
     c.     $432,000
     d.     $288,000

     

58.      Floyd Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 5,000 units of this part are as follows:

          Direct materials           $108,000
          Direct labor           156,000
          Variable factory overhead           72,000
          Fixed factory overhead           168,000
          Total costs           $504,000

     Of the fixed factory overhead costs, $72,000 is avoidable. Assume that Floyd Company can buy 5,000 units of the part from another producer for $105.60 each. The facilities currently used to make the part could be rented out to another manufacturer for $72,000 a year. Floyd Company should:

     a.     make the part to save $19.20 per unit
     b.     make the part to save the company $24,000
     c.     buy the part to save $14.40 per unit
     d.     buy the part to save the company $72,000



59.      Miller Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 5,000 units of this part are as follows:

          Direct materials           $108,000
          Direct labor           156,000
          Variable factory overhead           72,000
          Fixed factory overhead           168,000
          Total costs           $504,000

     Of the fixed factory overhead costs, $72,000 is avoidable.      Assume that Miller Company can buy 5,000 units of the part from another producer for $100.80 each. The current facilities could be used to make 5,000 units of a product that has a contribution margin of $24 per unit. Fixed factory overhead costs to produce this new product would be exactly the same as for the currently produced part. Miller Company should:

     a.     continue to make the part and earn an extra $48,000 in profit
     b.     buy the part and produce the new product and earn an extra $4.80 per unit contribution to profit
     c.     continue to make the part and earn an extra $4.80 per unit contribution to profit
     d.     buy the part and produce the new product and earn an extra $24 per unit contribution to profit


60.      A key factor in a make-or-buy decision is:

     a.     whether or not there are idle facilities
     b.     the amount of the sunk costs
     c.     gain or loss on the disposal of equipment
d.     the total joint costs

61.      


 

     a.     Variable manufacturing costs
     b.     Avoidable costs
     c.     Long term relationship with suppliers
d.     Opportunity costs

62.     Future costs are relevant in decision making when:

     a.     they exceed future revenues
     b.     they are not based on estimates
     c.     they differ between alternatives
d.     they are the same between alternatives


63.      


 

     a.     Excess capacity     
     b.     Variable factory overhead     
     c.     Rental income from unused facilities
d.     All of these answers are correct.

64.      If a company has excess capacity, the most it would pay for buying a product that
     it currently makes would be the:

     a.     total cost of producing the product
     b.     market value of the product
     c.     market value less the usual markup on the product
     d.     total variable cost of producing the product

LEARNING OBJECTIVE 3

65.      Hogan Corporation has a joint process which produces three products: P, G, and A. Each product may be sold at split-off or processed further and then sold. Joint processing costs for a year amount to $25,000. Other relevant data are as follows:

                     Separable
                     Processing
                     Sales Value     Costs after     Sales Value
          Product     at Split off     Split off     at Completion

     P          $32,000     $5,000     $40,000
     G          16,500     7,500     29,000
     A          6,400     8,000     10,000

     Once product P is produced, processing it further will cause profits to:

     a.     increase by $8,000     
     b.     decrease by $5,000
     c.     decrease by $8,000
     d.     increase by $3,000

     


66.      Woods Corporation has a joint process that produces three products: P, G, and A. Each product may be sold at split-off or processed further and then sold. Joint processing costs for a year amount to $25,000. Other relevant data are as follows:
                      Separable
           Processing
                Sales Value     Costs after     Sales Value
          Product     at Split off     Split off     at Completion

          P          $62,000     $5,000     $88,000
          G          12,500     6,500     19,000
          A          9,400     5,000     12,000

     Product G:

     a.     should be processed further to increase profits by $6,500
     b.     should be sold at split off since processing further would only reduce profits by $6,500
     c.     should be processed further to increase profits by $19,000
     d.     can be processed further or sold at split off; there is no difference in profit.


67.      Els Corporation has a joint process that produces two products: A and B. Each product may be sold at the split-off point or processed further and then sold. Joint processing costs for a year amount to $25,000.

     Product A can be sold at the split-off point for $32,000. Alternately, product A can be processed further and sold for $40,000. Additional processing costs are $5,000.
          
     In deciding whether to sell product A at the split-off point or to process further, the


 

     a.     joint processing cost of $25,000     
     b.     sales value at split-off of $32,000
     c.     sales value at completion of $40,000     
     d.     All of these answers are relevant.


68.      Cancun Corporation has a joint process which produces three products: X, Y, and Z. Each product may be sold at split-off or processed further and then sold. Joint processing costs for a year amount to $100,000. Other relevant data are as follows:
                     Separable
           Processing
                Sales Value     Costs after     Sales Value
          Product     at Split off     Split off     at Completion

     X     $128,000     $16,000     $160,000
     Y     75,000     26,000     99,000
     Z          32,600     20,000     50,000

     Once product X is produced, processing it further will cause profits to:

     a.     increase by $32,000
     b.     decrease by $16,000
     c.     decrease by $32,000
     d.     increase by $16,000

     

69.      Hawaii Corporation has a joint process which produces three products: X, Y, and Z. Each product may be sold at split-off or processed further and then sold. Joint processing costs for a year amount to $100,000. Other relevant data are as follows:
                     Separable
                     Processing
                Sales Value     Costs after     Sales Value
          Product     at Split off     Split off     at Completion

     X     $128,000     $16,000     $160,000
     Y     50,000     26,000     76,000
     Z     25,600     20,000     40,000
     
     Product Y:

     a.     should be processed further to increase profits by $26,000
     b.     should be sold at split off since processing further would only reduce profits by $26,000
     c.     should be processed further to increase profits by $76,000
d.     can be processed further or sold at split off; there is no difference in profit.

     


70.      Bermuda Triangle Corporation has a joint process which produces three products: X, Y, and Z. Each product may be sold at split-off or processed further and then sold. Joint processing costs for a year amount to $100,000. Other relevant data are as follows:

                     Separable
                     Processing
                Sales Value     Costs after     Sales Value
          Product     at Split off     Split off     at Completion

          X     $128,000     $16,000     $160,000
          Y     50,000     26,000     76,000
          Z     25,600     20,000     40,000

     To maximize profits, Bermuda Triangle Corporation should process


 

     a.     product Z only     
     b.     product Y only
     c.     product X only     
     d.     products X, Y, and Z

X: ($160,000 - $128,000) - $16,000 = $16,000
Y: ($76,000 - $50,000) - $26,000 = $0
Z: ($40,000 - $25,600) - 20,000 = $(5,600)

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