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91.      Jeannie Company is considering replacing a machine that is presently used in the production of its product. The following data are available:

                          Replacement
                     Old Machine     Machine

          Original cost      $333,000     $222,000
          Useful life in years      6     5
          Current age in years      1     0
          Book value      $198,000     
          Disposal value now      $132,000     
          Disposal value in 5 years      0     0
          Annual cash operating costs      $45,000     $34,000

     


 

     a.     The disposal value of the old machine
     b.     The original cost of the old machine
     c.     The annual cash operating costs of the old machine
     d.     The annual cash operating costs of the replacement machine


92.      Cocoa Beach Company is considering replacing a machine that is presently used in the production of its product. The following data are available:

                          Replacement
                     Old Machine     Machine

          Original cost      $200,000     $160,000
          Useful life in years      10     5
          Current age in years      5     0
          Book value      $100,000     
          Disposal value now      $32,000     
          Disposal value in 5 years      0     0
          Annual cash operating costs      $20,000     $14,000
     
     Ignoring income taxes, the difference in cost between the old and new machine is:

     a.     $98,000 in favor of the old machine
     b.     $98,000 in favor of the new machine
     c.     $40,000 in favor of the new machine     
d.     $12,000 in favor of the new machine

     

93.      The gain or loss on the disposal of equipment is determined by:

     a.     adding the book value of the old equipment to the cost of the new equipment
     b.     adding the disposal value and the book value of the old equipment
     c.     subtracting the book value from the cash received for the old equipment
     d.     subtracting the book value of the old equipment from the cost of the new equipment

94.      In a decision to keep or replace existing equipment,


 

     a.     the disposal value of the old equipment is irrelevant
     b.     the book value of the old equipment is irrelevant
     c.     the cost of the new equipment is relevant
     d.     depreciation on the new equipment is relevant


LEARNING OBJECTIVE 6

95.     Geren Company produces and sells a product that has variable costs of $9 per unit and fixed costs of $200,000 per year.
     
     If production decreases from 50,000 to 40,000 units, the cost per unit will:

     a.     increase by $1
     b.     decrease by $1
     c.     increase to $13
d.     decrease to $14

96.     Melissa Company produces and sells a product that has variable costs of $7 per unit and fixed costs of $240,000 per year.      


 

     a.     $7
     b.     $19
     c.     $5
a.     $12

     

97.     Zachary Company produces and sells a product that has variable costs of $7 per unit and fixed costs of $200,000 per year.      


 

     a.     $7
     b.     $17
     c.     $10
d.     $12

     

98.     Joshua Company produces and sells a product that has variable costs of $7 per unit and fixed costs of $200,000 per year.      If production increases from 20,000 units to 25,000 units, the unit cost will:

     a.     increase by $35,000
     b.     decrease by $8 per unit
     c.     decrease by $2 per unit
     d.     not change

     

99. Past costs that are unavoidable and unchangeable are known as:

     a.     fixed overhead costs
     b.     operating costs
     c.     product production costs
     d.     sunk costs

LEARNING OBJECTIVE 8

100.     The choice of the absorption or contribution approach affects the      manufacturing cost per unit because the:

     a.     manufacturing cost per unit is higher if the absorption approach is used
     b.     manufacturing cost per unit is higher if the contribution approach is used
     c.     manufacturing cost per unit is the same regardless of the approach
     d.     manufacturing cost per unit is independent of the approach

101.     The choice of the absorption or contribution approach affects a firm’s contribution margin because:

     a.     contribution margin is higher if the contribution approach is used
     b.     contribution margin is lower if the contribution approach is used
     c.     contribution margin is independent of the approach
     d.     None of these answers is correct.

102.     The absorption approach to the computation of manufacturing cost      differs from the contribution approach because the absorption approach:

     a.     includes variable selling and administrative costs
     b.     includes fixed overhead
     c.     includes all fixed costs
     d.     includes all selling and administrative costs

103.     Which of the following is correct?

     a.     The contribution income statement provides a gross margin.
     b.     The absorption income statement provides a contribution margin.
     c.     Both statements are correct.
     d.     Neither statement is correct.


104.     Andrew Company provided the following information regarding its one and only product - skateboards.
     
          Direct materials used      $350,000
          Direct labor      170,000
          Fixed overhead     80,000
          Variable overhead     20,000
          Variable selling and administrative     90,000

          Units produced and sold     40,000

     The manufacturing cost per unit by using the absorption approach is:

     a.     $13.00
     b.     $13.50
     c.     $14.75
     d.     $15.50

     

105.     Donald Company provided the following information regarding its one and only product - skateboards.

          Direct materials used          $350,000
          Direct labor                170,000
          Fixed overhead               95,000
          Variable overhead               20,000
          Variable selling and administrative               55,000

          Units produced and sold               40,000

     The manufacturing cost per unit, if the contribution approach is used, is:

     a.     $13.00
     b.     $13.50
     c.     $14.75
     d.     $15.50

     


106.     Adios Company provided the following information regarding its one and only product - skateboards.

          Direct materials used          $350,000
          Direct labor                170,000
          Fixed overhead               80,000
          Variable overhead               20,000
          Variable selling and administrative               50,000

          Units produced and sold               40,000

     The difference in manufacturing cost per unit, if the absorption approach
     is used in place of the contribution approach, is:

     a.     cost per unit increases by $2
     b.     cost per unit decreases by $2
     c.     cost per unit increases by $0.75
     d.     cost per unit decreases by $0.75


107.     Bueno Company provided the following information regarding its one and only product - ice skates.

          Direct materials used          $200,000
          Direct labor                80,000
          Fixed overhead               100,000
          Fixed selling and administrative costs     150,000
          Variable overhead               20,000
          Variable selling and administrative               60,000
          Selling unit price               75

          Units produced and sold               10,000


 

     a.     $28
     b.     $30
     c.     $36
     d.     $40

     


108.     Hola Company provided the following information regarding its one and only product - ice skates.

          Direct materials used          $200,000
          Direct labor                80,000
          Fixed overhead               100,000
          Fixed selling and administrative costs     150,000
          Variable overhead               20,000
          Variable selling and administrative               60,000
          Selling unit price               75

          Units produced and sold               10,000


 

     a.     $280,000
     b.     $300,000
     c.     $360,000
     d.     $400,000

 

109.     Agua Company provided the following information regarding its one and only product - skateboards.

          Direct materials used          $200,000
          Direct labor                80,000
          Fixed overhead               100,000
          Fixed selling and administrative costs     150,000
          Variable overhead               20,000
          Variable selling and administrative               60,000
          Selling unit price               75

          Units produced and sold               10,000


 

     a.     $350,000
     b.     $390,000
     c.     $470,000
     d.     $450,000
     


110.     Por Favor Company provided the following information regarding its one and only product - skateboards.

          Direct materials used          $200,000
          Direct labor                80,000
          Fixed overhead               100,000
          Fixed selling and administrative costs     150,000
          Variable overhead               20,000
          Variable selling and administrative               60,000
          Selling unit price               75

          Units produced and sold               10,000


 

     a.     $28
     b.     $30
     c.     $36
     d.     $40
     
111.     Don Juan Company provided the following information regarding its one and only product - ice skates.

          Direct materials used          $300,000
          Direct labor                180,000
          Fixed overhead               100,000
          Fixed selling and administrative costs     150,000
          Variable overhead               120,000
          Variable selling and administrative               60,000
          Selling unit price               75

          Units produced and sold               10,000


 

     a.     $480,000
     b.     $600,000
     c.     $300,000
     d.     $420,000

     


112.     Feliz Company provided the following information regarding its one and only product - skateboards.

          Direct materials used          $200,000
          Direct labor                80,000
          Fixed overhead               100,000
          Fixed selling and administrative costs     150,000
          Variable overhead               20,000
          Variable selling and administrative               60,000
          Selling unit price               75

          Units produced and sold               10,000


 

     a.     $350,000
     b.     $390,000
     c.     $470,000
     d.     $450,000
     

113.     Brady Company provided the following information regarding its one and only product - skateboards.

          Direct materials used          $200,000
          Direct labor                180,000
          Fixed overhead               100,000
          Fixed selling and administrative costs     150,000
          Variable overhead               120,000
          Variable selling and administrative               60,000
          Selling unit price               75

          Units produced and sold               10,000


 

     a.     $100,000
     b.     $150,000
     c.     $120,000
     d.     None of these answers is correct.
     


114.     Partridge Company provided the following information regarding its one and only product - ice skates.

          Direct materials used          $200,000
          Direct labor                80,000
          Fixed overhead               100,000
          Fixed selling and administrative costs     150,000
          Variable overhead               20,000
          Variable selling and administrative               60,000
          Selling unit price               75

          Units produced and sold               10,000

     The difference in manufacturing cost per unit between the absorption approach and contribution approach is:

     a.     $10 higher if absorption cost is used
     b.     $10 higher if contribution cost is used
     c.     $36 higher if absorption is used
     d.     $36 higher if contribution is used     
     
     

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