Maxim manufactures a hamster food product called Green Health.Maxim currently has 10,000 bags of Green Health on hand. Thevariable production costs per bag are $1.80 and total fixed costsare $10,000. The hamster food can be sold as it is for $9.00 perbag or be processed further into Premium Green and Green Deluxe atan additional $2,000 cost. The additional processing will yield10,000 bags of Premium Green and 3,000 bags of Green Deluxe, whichcan be sold for $8 and $6 per bag, respectively. The net advantage(incremental income) of processing Green Health further intoPremium Green and Green Deluxe would be:
$98,000.
$96,000.
$8,000.
$6,000.
$2,000.
Maxim manufactures a hamster food product called Green Health.Maxim currently has 10,000 bags of Green Health on hand. Thevariable production costs per bag are $1.80 and total fixed costsare $10,000. The hamster food can be sold as it is for $9.00 perbag or be processed further into Premium Green and Green Deluxe atan additional $2,000 cost. The additional processing will yield10,000 bags of Premium Green and 3,000 bags of Green Deluxe, whichcan be sold for $8 and $6 per bag, respectively. The net advantage(incremental income) of processing Green Health further intoPremium Green and Green Deluxe would be:
$98,000.
$96,000.
$8,000.
$6,000.
$2,000.
Related questions
1)
Chang Industries has 1,900 defective units of product that havealready cost $13.90 each to produce. A salvage company willpurchase the defective units as they are for $4.90 each. Chang'sproduction manager reports that the defects can be corrected for$6.10 per unit, enabling them to be sold at their regular marketprice of $20.80. The incremental income or loss on reworking theunits is:
$18,620 loss.
$18,620 income.
$11,590 loss.
$30,210 income.
$27,930 income.
2)
Maxim manufactures a hamster food product called Green Health.Maxim currently has 10,000 bags of Green Health on hand. Thevariable production costs per bag are $2.40 and total fixed costsare $10,000. The hamster food can be sold as it is for $9.65 perbag or be processed further into Premium Green and Green Deluxe atan additional $2,600 cost. The additional processing will yield10,000 bags of Premium Green and 3,600 bags of Green Deluxe, whichcan be sold for $8.65 and $6.65 per bag, respectively. The netadvantage (incremental income) of processing Green Health furtherinto Premium Green and Green Deluxe would be: |
$110,440.
$107,840.
$13,940.
$11,340.
$2,600.
3)
Bluebird Mfg. has received a special one-time order for 15,000bird feeders at $3.10 per unit. Bluebird currently produces andsells 75,000 units at $7.10 each. This level represents 80% of itscapacity. Production costs for these units are $3.65 per unit,which includes $2.30 variable cost and $1.35 fixed cost. IfBluebird accepts this additional business, the effect on net incomewill be:
$46,500 increase.
$12,000 increase.
$34,500 increase.
$8,250 decrease.
$34,500 decrease.
4)
Markson Company had the following results of operations for thepast year:
| Sales (8,000 units at$19.60) | $156,800 | |
| Variable manufacturingcosts | $84,400 | |
| Fixed manufacturing costs | 14,600 | |
| Variable selling andadministrative expenses | 10,400 | |
| Fixed selling and administrativeexpenses | 19,600 | (129,000) |
| Operating income | $27,800 |
A foreign company whose sales will not affect Markson's marketoffers to buy 2,000 units at $13.40 per unit. In addition tovariable manufacturing costs, selling these units would increasefixed overhead by $1,560 for the purchase of special tools. IfMarkson accepts this additional business, its profits will:
Increase by $3,100.
Decrease by $5,450.
Decrease by $1,560.
Increase by $1,540.
Decrease by $4,660.
5)
A company is considering the purchase of a new piece ofequipment for $93,200. Predicted annual cash inflows from thisinvestment are $38,000 (year 1), $29,000 (year 2), $19,000 (year3), $13,000 (year 4) and $8,000 (year 5). The payback periodis: |
4.45 years.
3.55 years.
2.55 years.
4.21 years.
3.00 years.
6)
A company is planning to purchase a machine that will cost$30,600, have a six-year life, and be depreciated over a three-yearperiod with no salvage value. The company expects to sell themachine's output of 3,000 units evenly throughout each year. Aprojected income statement for each year of the asset's lifeappears below. What is the accounting rate of return for thismachine? |
| Sales | $123,000 | |
| Costs: | ||
| Manufacturing | $53,100 | |
| Depreciation onmachine | 5,100 | |
| Selling andadministrative expenses | 41,000 | (99,200) |
| Income beforetaxes | $23,800 | |
| Income tax(30%) | (7,140) | |
| Net income | $16,660 | |
108.89%.
50.00%.
54.44%.
33.33%.
5.10%.
7)
The following present value factors are provided for use in thisproblem.
| Periods | Present Value of $1 at 8% | Present Value of anAnnuity of $1 at8% |
| 1 | 0.9259 | 0.9259 |
| 2 | 0.8573 | 1.7833 |
| 3 | 0.7938 | 2.5771 |
| 4 | 0.7350 | 3.3121 |
Xavier Co. wants to purchase a machine for $37,100 with a four yearlife and a $1,100 salvage value. Xavier requires an 8% return oninvestment. The expected year-end net cash flows are $12,100 ineach of the four years. What is the machine's net present value(round to the nearest whole dollar)?
$3,785.
$2,976.
$40,885.
$(3,785).
$(2,976).
8)
Alfarsi Industries uses the net present value method to makeinvestment decisions and requires a 15% annual return on allinvestments. The company is considering two different investments.Each require an initial investment of $14,400 and will produce cashflows as follows:
| End ofYear | Investment | |
| A | B | |
| 1 | $9,600 | $0 |
| 2 | 9,600 | 0 |
| 3 | 9,600 | 28,800 |
The present value factors of $1 each year at 15% are:
| 1 | 0.8696 |
| 2 | 0.7561 |
| 3 | .6575 |
The present value of an annuity of $1 for 3 years at 15% is2.2832
The net present value of Investment A is:
$18,936.
$(14,400).
$14,400.
$(21,919).
$7,519.
9)
Paxton Company can produce a component of its product thatincurs the following costs per unit: direct materials, $10.80;direct labor, $14.80, variable overhead, $3.80 and fixed overhead,$8.80. An outside supplier has offered to sell the product to Axlefor $38.20. Compute the net incremental cost or savings of buyingthe component.
$8.80 savings per unit.
$3.80 cost per unit.
$0 cost or savings per unit.
$8.80 cost per unit.
$4 savings per unit.
10)
Granfield Company has a piece of manufacturing equipment with abook value of $36,000 and a remaining useful life of four years. Atthe end of the four years the equipment will have a zero salvagevalue. The market value of the equipment is currently $21,200.Granfield can purchase a new machine for $112,000 and receive$21,200 in return for trading in its old machine. The new machinewill reduce variable manufacturing costs by $18,200 per year overthe four-year life of the new machine. The total increase ordecrease in net income by replacing the current machine with thenew machine (ignoring the time value of money) is:
$18,000 increase
$72,800 decrease
$14,800 decrease
$49,200 increase
$18,000 decrease
Factor Co. can produce a unit of product for the following costs:
| Direct material | $ | 8 | |
| Direct labor | 24 | ||
| Overhead | 40 | ||
| Total costs per unit | $ | 72 | |
An outside supplier offers to provide Factor with all the units it needs at $46 per unit. If Factor buys from the supplier, the company will still incur 60% of its overhead. Factor should choose to:
Multiple Choice
Buy since the relevant cost to make it is $32.
Buy since the relevant cost to make it is $56.
Buy since the relevant cost to make it is $48.
Make since the relevant cost to make it is $32.
Make since the relevant cost to make it is $48.
Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $3 per unit. Bluebird currently produces and sells 75,000 units at $7.00 each. This level represents 80% of its capacity. These bird feeders would be marketed under the wholesalerâs name and would not affect Bluebirdâs sales through its normal channels. Production costs for these units are $3.50 per unit, which includes $2.25 variable cost and $1.25 fixed cost. If Bluebird accepts this additional business, the incremental revenue will be:
Multiple Choice
$11,250.
$7,500.
$33,750.
$33,750.
$45,000.
A company has the choice of either selling 600 defective units as scrap or rebuilding them. The company could sell the defective units as they are for $2.00 per unit. Alternatively, it could rebuild them with incremental costs of $0.60 per unit for materials, $1.00 per unit for labor, and $0.80 per unit for overhead, and then sell the rebuilt units for $5.00 each. What should the company do?
Multiple Choice
Since both alternatives produce a loss, store the units in hopes of a better price later.
Rebuild the units.
It does not matter because both alternatives have the same result.
Sell the units as scrap.
Throw the units away.
Granfield Company has a piece of manufacturing equipment with a book value of $40,000 and a remaining useful life of four years. At the end of the four years the equipment will have a zero salvage value. The market value of the equipment is currently $22,000. Granfield can purchase a new machine for $120,000 and receive $22,000 in return for trading in its old machine. The new machine will reduce variable manufacturing costs by $19,000 per year over the four-year life of the new machine. The total increase or decrease in net income by replacing the current machine with the new machine (ignoring the time value of money) is:
Multiple Choice
$18,000 decrease
$52,000 increase
$76,000 increase
$22,000 increase
Derby Inc. manufactures a product which contains a small part. The company has always purchased this motor from a supplier for $125 each. Derby recently upgraded its own manufacturing capabilities and now has enough excess capacity (including trained workers) to begin manufacturing the motor instead of buying it. The company prepared the following per unit cost projections of making the motor, assuming that overhead is allocated to the part at the normal predetermined overhead rate of 150% of direct labor cost.
| Direct material | $ | 38 | |
| Direct labor | 50 | ||
| Overhead (fixed and variable) | 75 | ||
| Total | $ | 163 | |
The required volume of output to produce the motors will not require any incremental fixed overhead. Incremental variable overhead cost is $21 per motor. What is the effect on income if Derby decides to make the motors?
Multiple Choice
Income will decrease by $23 per unit.
Income will decrease by $16 per unit.
Income will increase by $16 per unit.
Income will increase by $23 per unit.
Income will increase by $39 per unit.
Chang Industries has 2,000 defective units of product that have already cost $14 each to produce. A salvage company will purchase the defective units as they are for $5 each. Chang's production manager reports that the defects can be corrected for $6 per unit, enabling them to be sold at their regular market price of $21. Chang should:
Multiple Choice
Sell the units as they are because repairing them will cause their total cost to exceed their selling price.
Correct the defects and sell the units at the regular price.
Sell the units to the salvage company for $5 per unit.
Throw the units away.
Sell 1,000 units to the salvage company and repair the remainder.
Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $3 per unit. Bluebird currently produces and sells 75,000 units at $7.00 each. This level represents 80% of its capacity. These bird feeders would be marketed under the wholesalerâs name and would not affect Bluebirdâs sales through its normal channels. Production costs for these units are $3.50 per unit, which includes $2.25 variable cost and $1.25 fixed cost. If Bluebird accepts this additional business, the incremental costwill be:
Multiple Choice
$33,750.
$38,750.
$7,500.
$45,000.
$11,250.
Maxim manufactures a hamster food product called Green Health. Maxim currently has 10,000 bags of Green Health on hand. The variable production costs per bag are $1.80 and total fixed costs are $10,000. The hamster food can be sold as it is for $9.00 per bag or be processed further into Premium Green and Green Deluxe at an additional cost. The additional processing will yield 10,000 bags of Premium Green and 3,000 bags of Green Deluxe, which can be sold for $8 and $6 per bag, respectively. The incremental revenue of processing Green Health further into Premium Green and Green Deluxe would be:
Multiple Choice
$96,000.
$ 2,000.
$ 8,000.
$ 6,000.
$98,000.
The Mad Hatter Company owns a machine that manufactures two types of chimney caps. Production time is .20 hours for cap A and .40 hours for cap B. The machine's capacity is 2,000 hours per year. Both products are sold to a single customer who has agreed to buy all of the company's output up to a maximum of 1,000 units of cap A and 6,000 units of cap B. Selling prices and variable costs per unit are shown below. Based on this information, what is the Mad Hatter's most profitable sales mix?
| Cap A | Cap B | ||||||
| Selling price per unit | $ | 80 | $ | 60 | |||
| Variable costs per unit | 53 | 42 | |||||
Multiple Choice
1,000 units of cap A and 4,500 units of cap B.
10,000 units of cap A.
1,000 units of cap A and 6,000 units of cap B.
5,000 units of cap B.
1,000 units of cap A and 5,000 units of cap B.
A company has the choice of either selling 600 defective units as scrap or rebuilding them. The company could sell the defective units as they are for $2.00 per unit. Alternatively, it could rebuild them with incremental costs of $0.60 per unit for materials, $1.00 per unit for labor, and $0.80 per unit for overhead, and then sell the rebuilt units for $5.00 each. What is the amount of incremental income (loss) from rebuilding?
Multiple Choice
$3.00 per unit.
$(0.60) per unit.
$7.00 per unit.
$0.60 per unit.
$(3.00) per unit.
