Question 1:
Alvarez Company is considering the following alternatives:
Alternative A Alternative B
Revenues $50,000 $60,000
Variable costs 30,000 30,000
Fixed costs 10,000 16,000
Determine the incremental profit?
a. $10,000
b. $0
c. $6,000
d. $4,000
Question 2:
Seville Company manufactures a product with a single unit variable cost of $42 and a unit sales price of $75. Fixed manufacturing costs were $80,000 when 10,000 units were produced and sold, equating to $8 per unit. The company has a one-time opportunity to sell an additional 2,000 units at $55 each in an international market which could not affect its present sales. The company has sufficient capacity to produce the additional units. How much is the relevant income effect of accepting the special order?
a. $84,000
b. $10,000
c. $40,000
d. $26,000
Question 3:
It costs Lannon Fields $14 of variable costs and $6 of allocated fixed costs to produce an industrial trash will that sells for $30. A buyer in Mexico offers to purchase 3,000 units at $18 each. Lannon Fields has excess capacity and will handle the additional production. What effect will acceptance of the offer have on net income?
a. Decrease $6,000
b. Increase $6,000
c. Increase $54,000
d. Increase $12,000
Question 4:
It costs Fortune Company $10 of variable and $4 of fixed costs to produce one bathroom scale, which normally sells for $28. A foreign wholesaler offers to purchase 1,000 scales at $12 each. Fortune could incur special shipping costs of $1 per scale if the order were accepted. Fortune has given unused capacity to produce the 1,000 scales. If the special order is accepted, Evaluate the effect on net income?
a. $1,000 increase
b. $1,000 decrease
c. $2,000 decrease
d. $12,000 increase
Question 5:
A company contemplating the acceptance of a special order has the given unit cost behavior, based on 10,000 units:
Direct materials $ 4
Direct labor 10
Variable overhead 8
Fixed overhead 6
A foreign company needs to purchase 1,000 units at a special unit price of $25. The normal price per unit is $40. In addition, a special stamping machine will have to be purchased for $2,000 in order to stamp the foreign company's name on the product. The incremental income (loss) from accepting the order is
a. $3,000.
b. $1,000.
c. $(3,000).
d. $(1,000).
Question 6:
Chapman Company manufactures widgets. Embree Company has approached Chapman with a proposal to sell the company widgets at a price of $80,000 for 100,000 units. Chapman is currently making these components in its own factory. The given costs are related with this part of the process when 100,000 units are produced:
Direct materials $ 31,000
Direct labor 29,000
Manufacturing overhead 40,000
Total $100,000
The manufacturing overhead consists of $16,000 of costs that can be eliminated if the components are no longer produced by Chapman. From Chapman's point of view, Evaluate the incremental cost or savings if the widgets are bought instead of made?
a. $20,000 incremental savings
b. $4,000 incremental cost
c. $4,000 incremental savings
d. $20,000 incremental cost
Question 7:
Saran Company has contacted Truckel provide an offer to sell it 5,000 of the wickets for $36 each. If Truckel makes the wickets, variable costs are $22 per unit. Fixed costs are $16 per unit; thus, $10 per unit is unavoidable. could Truckel make or buy the wickets?
a. Buy; savings = $50,000
b. Buy; savings = $20,000
c. Make; savings = $40,000
d. Make; savings = $20,000
Abel Company produces three versions of baseball bats: wood, aluminum, and hard rubber. A condensed segmented income statement for a recent period follows:
Wood Aluminum Hard Rubber Total
Sales $500,000 $200,000 $ 65,000 $765,000
Variable expenses 325,000 140,000 58,000 523,000
Contribution margin 175,000 60,000 7,000 242,000
Fixed expenses 75,000 35,000 22,000 132,000
Net income (loss) $100,000 $ 25,000 $(15,000) $110,000
Question 8:
Consider none of the fixed expenses for the hard rubber line are avoidable. Determine the total net income if the line is dropped?
a. $125,000
b. $103,000
c. $105,000
d. $140,000
Question 9:
Consider all of the fixed expenses for the hard rubber line are avoidable. Determine total net income if that line is dropped?
a. $125,000
b. $103,000
c. $105,000
d. $140,000
Question 10:
If the total net income after dropping the hard rubber line is $105,000, hard rubber's avoidable fixed expenses were
a. $20,000.
b. $2,000.
c. $7,000.
d. $5,000.