Question 1: Gleam Clean cleans and waxes floors for commercial customers. The company is presently working at less than capacity with equipment and employees at times idle. The company recently received an order from a potential customer outside the company's normal geographic service region for a price of $9,000. The size of the proposed job is 22,000 square feet. The company's normal service costs are as follows:
Unit-level materials $0.18 per square foot
Unit-level labor $0.25 per square foot
Unit-level variable overhead $0.08 per square foot
Facility-level overhead Allocated at $0.10 per square foot
If the company accepts the special offer,
A) the company will lose $4,420 on the job.
B) the company will lose $2,220 on the job.
C) the company will lose $460 on the job.
D) the company will earn $5,040 on the job.
Question 2: Great Products Company currently outsources an electrical switch that is a component in one of its products. The switches cost $20 each. The company is considering making the switches internally at the following projected annual production costs:
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Unit-level material cost
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$ 3
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Unit-level labor cost
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$ 2
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Unit-level overhead
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$ 1
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Batch-level set-up cost (5,000 units per batch)
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$25,000
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Product-level supervisory salaries
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$37,500
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Allocated facility-level costs
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$20,000
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The company expects an annual need for 5,000 switches. If the company makes the product, it will have to utilize factory space currently being leased to another company for $1,500 a month. If the company decides to make the parts, total costs will be
A) $30,500 more than if the switches are purchased.
B) $27,000 less than if the switches are purchased.
C) $20,000 less than if the switches are purchased.
D) $10,500 more than if the switches are purchased.
Question 3: Jekyll Island Company is trying to decide which one of two alternatives it will accept. The costs and revenues associated with each alternative are listed below:
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Alternative 1
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Alternative 2
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Projected revenue
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$125,000
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$150,000
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Unit-level costs
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25,000
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36,000
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Batch-level costs
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12,500
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24,000
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Product-level costs
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15,000
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17,000
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Facility-level costs
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10,000
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12,500
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What is the differential revenue for this decision?
A) $ 25,000
B) $ 50,000
C) $125,000
D) $150,000
Question 4: The following information is provided for two products:
Assume the products will be sold in a store where shelf space is a scarce resource and there is sufficient room for only one of the two products. Expected sales for Product X are 8,000 units, and expected sales for Product Y are 6,000 units. Which product should be sold and why?
A) Product X should be sold solely because expected demand is greater.
B) Product X should be sold because sales of this product will provide a greater profit.
C) Product Y should be sold because sales of this product will provide a greater profit.
D) Product Y should be sold because it provides a greater contribution margin.