Chapter 13-Short-Run Decision Making: Relevant Costing: Multiple Choice

Chapter 13—Short-Run Decision Making: Relevant Costing
MULTIPLE CHOICE
1. Pasha Company produced 50 defective units last month at a unit manufacturing cost of $30. The
defective units were discovered before leaving the plant. Pasha can sell them "as is" for $20 or can
rework them at a cost of $15 and sell them at the regular price of $50. Which of the following is not
relevant to the sell-or-rework decision?
a. $15 for rework
b. $20 selling price of defective units
c. $30 manufacturing cost
d. $50 regular selling price
e. All of these are relevant.
ANS: C PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 13-1 NAT: BUSPROG: Analytic
STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-27-Managerial
Accounting Features/Costs KEY: Bloom's: Comprehension
NOT: 3 min.
2. Which of the following is not a step in the decision-making model?

a. define the problem
b. identify alternatives
c. consider qualitative factors
d. total relevant costs and benefits for each alternative
e. determine costs and benefits for both feasible and unfeasible alternatives
ANS: E PTS: 1 DIF: Difficulty: Easy
Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 2 min.
3. The act of choosing among alternatives with an immediate or limited end in view is termed
a. assessing feasible alternative.
b. strategic decision making.
c. constructing a decision model.
d. short-run decision making.
e. None of these.
ANS: D PTS: 1 DIF: Difficulty: Easy
NOT: 2 min.
4. Future costs that differ across alternatives are

a. opportunity costs.
b. sunk costs.
c. relevant costs.
d. variable costs.
e. product costs.
ANS: C PTS: 1 DIF: Difficulty: Easy
NOT: 2 min.
5. Depreciation of equipment is an example of a(n)

a. relevant cost.
b. opportunity cost.
c. sunk cost.
d. variable cost.
e. None of these.
NOT: 2 min.
6. Resources that can be purchased in the amount needed and at the time of use are
a. lumpy resources.
b. flexible resources.
c. committed resources.
d. product resources.
e. implicit resources.
ANS: B PTS: 1 DIF: Difficulty: Easy
STA: AICPA: BB-Resource Management |AICPA: FN-Decision Modeling | IMA: Decision Analysis |
ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 2 min.
7. A company is considering a special order for 1,000 units to be priced at $8.90 (the normal price would
be $11.50). The order would require specialized materials costing $4.00 per unit. Direct labor and
variable factory overhead would cost $2.15 per unit. Fixed factory overhead is $1.20 per unit.
However, the company has excess capacity and acceptance of the order would not raise total fixed
factory overhead. The warehouse, however, would have to add capacity costing $1,300. Which of the
following is relevant to the special order?
a. $11.50 normal selling price
b. $1.20 fixed factory overhead per unit
c. $7.35 spent on donuts and coffee
d. $8.90 selling price per unit of special order
e. None of these.
ANS: D PTS: 1 DIF: Difficulty: Moderate
NOT: 3 min.
8. Walloon Company produced 150 defective units last month at a unit manufacturing cost of $30. The
defective units were discovered before leaving the plant. Walloon can sell them as is for $20 or can
rework them at a cost of $15 and sell them at the regular price of $50. The total relevant cost of
reworking the defective units is
a. $4,500.
b. $6,750.
c. $7,500.
d. $3,000.
e. $2,250.
ANS: E
Cost of reworking the defective units = 150($15) = $2,250
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-1

NAT: BUSPROG: Analytic
Accounting Features/Costs KEY: Bloom's: Application
NOT: 3 min.
9. An important qualitative factor to consider regarding a special order is the

a. variable costs associated with the special order.
b. avoidable fixed costs associated with the special order.
c. effect the sale of special-order units will have on the sale of regularly priced units.
d. incremental revenue from the special order.
NOT: 2 min.
10. Qualitative factors that should be considered when evaluating a make-or-buy decision are
a. the quality of the outside supplier's product.
b. whether the outside supplier can provide the needed quantities.
c. whether the outside supplier can provide the product when it is needed.
d. All of these.
NOT: 2 min.
11. Abbott Company is considering purchasing a new machine to replace a machine purchased one year
ago that is not achieving the expected results. The following information is available:
Expected maintenance costs of new machine $ 12,000 per year

Purchase price of existing machine $150,000
Expected cost savings of new machine $ 20,000 per year
Expected maintenance costs of existing machine $ 8,000 per year
Resale value of existing machine $ 35,000
Which of these items is irrelevant?

a. Expected maintenance costs of new machine
b. Purchase cost of existing machine
c. Expected maintenance costs of existing machine
d. Expected resale value of existing machine
NOT: 2 min.
Figure 13-1.
Fuller Company makes frames. A customer wants to place a special order for 600 frames in green with
the company logo painted on the frame, to be priced at $40 each. Normally, Fuller would charge $90
per frame for this type of order. Fuller figures that wood and glass will cost $16 per frame, variable
overhead (machining, electricity) is $4 per frame, direct labor is $12 per frame, and one setup will be
required at $1,000 per setup. The set-up charge costs are 100% labor. Currently, the workers needed to
set up for and make the frames are working at Fuller. Their wages will be paid whether or not the
special order is accepted. Fuller's policy is to avoid layoffs to the extent possible.
12. Refer to Figure 13-1. Which costs of the special order relate to flexible resources?
a. wood and glass
b. wood, glass, and variable overhead
c. depreciation on machinery
d. wood, glass, and direct labor
e. wood, glass, direct labor, and setup labor
STA: AICPA: BB-Resource Management | IMA: Decision Analysis | ACBSP: APC-27-Managerial
NOT: 3 min.
13. Refer to Figure 13-1. Which of the following is a qualitative factor that Fuller would consider in
making the decision to accept or reject the special order?
a. cost of yarn and backing
b. cost of setup labor
c. the no-layoff policy
d. the use of machinery
e. the machining and electricity
NOT: 3 min.
14. Refer to Figure 13-1. Which of the following is irrelevant to the special order decision?
a. cost of wood and glass
b. direct labor cost
c. machining and electricity cost
d. $40 price
e. All of these are relevant.
ANS: B PTS: 1 DIF: Difficulty: Moderate
NOT: 2 min.
15. Refer to Figure 13-1. If Fuller accepts the special order, by how much will operating income increase
or decrease?
a. $14,400 increase
b. $12,000 decrease
c. $12,000 increase
d. $21,600 increase
e. There will be no effect on operating income.
ANS: C
Sales ($40 x 600) $24,000

Less: wood and glass ($16 x 600) $9,600
Variable overhead ($4 x 600) $2,400
Increase in operating income $12,000

NOT: 3 min.
16. Which of the following costs is not relevant to a decision to sell a product at split-off or process the
product further and then sell the product?
a. joint costs allocated to the product
b. the selling price of the product at split-off
c. the additional processing costs after split-off
d. the selling price of the product after further processing
ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 13-1 | LO: 13-2 NAT: BUSPROG: Analytic
NOT: 2 min.
17. A decision involving a choice between internal and external production is what kind of decision?
a. relevant
b. keep-or-drop
c. sell-or-process-further
d. special-order
e. make-or-buy
NOT: 2 min.
18. A decision that focuses on whether a specially priced order should be accepted or rejected is what kind
of decision?
a. relevant
b. make-or-buy
d. special-order
e. keep-or-drop
NOT: 2 min.
19. A decision in which a manager needs to determine whether a product line (or segment) should
continue or be eliminated is what kind of decision?
a. relevant
b. make-or-buy
d. special-order
e. keep-or-drop
NOT: 2 min.
20. Piersall Company makes a variety of paper products. One product is 20 lb copier paper, packaged
5,000 sheets to a box. One box normally sells for $18. A large bank offered to purchase 3,000 boxes at
$14 per box. Costs per box are as follows:
Direct materials $8
Direct labor 3
Variable overhead 1
Fixed overhead 5
No variable marketing costs would be incurred on the order. The company is operating significantly
below the maximum productive capacity. No fixed costs are avoidable.
Should Piersall accept the order?

a. Yes, income will increase by $6,000.
b. Yes, income will increase by $9,000.
c. No, income will decrease by $3,000.
d. No, income will decrease by $6,000.
e. It doesn't matter; there will be no impact on income.
ANS: A
Yes, Piersall will make $6,000 if the order is accepted.
$6,000 = ($14  8  3  1)  3,000
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 13-2

NOT: 4 min.
21. Aerotoy Company makes toy airplanes. One plane is an excellent replica of a 737; it sells for $5.
Vacation Airlines wants to purchase 12,000 planes at $1.75 each to give to children flying
unaccompanied. Costs per plane are as follows:
Direct materials $1.00

Direct labor 0.50
Variable overhead 0.10
Fixed overhead 0.90
No variable marketing costs would be incurred. The company is operating significantly below the
maximum productive capacity. No fixed costs are avoidable. However, Vacation Airlines wants its own
logo and colors on the planes. The cost of the decals is $0.01 per plane and a special machine costing
$1,500 would be required to affix the decals. After the order is complete, the machine would be
scrapped. Should the special order be accepted?
a. Yes, income will increase by $300.
b. No, income will decrease by $180.
c. No, income will decrease by $1,500.
d. Yes, income will increase by $180.
e. It doesn't matter; there will be no change in income.
ANS: D
Contribution margin [($1.75  1.61) 12,000] $1,680
Less: cost of special machine 1,500
Increased income $ 180

NOT: 4 min.
22. Foster Industries manufactures 20,000 components per year. The manufacturing cost of the
components was determined as follows:
Direct materials $150,000

Direct labor 240,000
Inspecting products 60,000
Providing power 30,000
Providing supervision 40,000
Setting up equipment 60,000
Moving materials 20,000
Total $600,000
If the component is not produced by Foster, inspection of products and provision of power costs will
only be 10% of the current production costs; moving materials costs and setting up equipment costs
will only be 50% of the production costs; and supervision costs will amount to only 40% of the
production amount. An outside supplier has offered to sell the component for $25.50.
What is the effect on income if Foster Industries purchases the component from the outside supplier?
a. $25,000 increase
b. $45,000 increase
c. $90,000 decrease
d. $90,000 increase
ANS: A
SUPPORTING CALCULATIONS:
Make:
Direct materials $(150,000)
Direct labor (240,000)
Inspecting products (avoid 90%) (54,000)
Providing power (avoid 90%) (27,000)
Providing supervision (avoid 60%) (24,000)
Setting up equipment (avoid 50%) (30,000)
Moving materials (avoid 50%) (10,000)
Total $(535,000)
Buy:
Purchase price (20,000  $25.50) $(510,000)
$510,000  $535,000 = $25,000 increase in income
Or
Compare total “buy” cost to total “make” cost

Buy cost = 6,000 + 3,000 + 16,000 + 40,000 + 510,000
= 575,000
Make cost = 600,000

NOT: 5 min.
23. Vest Industries manufactures 40,000 components per year. The manufacturing cost of the components
was determined as follows:
Direct materials $ 75,000

Variable overhead 45,000
Fixed overhead 60,000
Total $300,000
An outside supplier has offered to sell the component for $12.75. Fixed costs will remain the same if
the component is purchased from an outside supplier.
What is the effect on income if Vest Industries purchases the component from the outside supplier?
a. $270,000 decrease
b. $270,000 increase
c. $30,000 decrease
d. $30,000 increase
ANS: A
Make:
Direct materials $ (75,000)
Variable overhead (45,000)
Total $(240,000)
Buy:
Purchase price (40,000  $12.75) $(510,000)
$510,000  $240,000 = $270,000 decrease in income

NOT: 3 min.
24. Vest Industries manufactures 40,000 components per year. The manufacturing cost of the components
was determined as follows:
Direct materials $ 75,000

Variable overhead 45,000
Fixed overhead 60,000
Total $300,000
An outside supplier has offered to sell the component for $12.75. Fixed cost will remain the same if
the component is purchased from an outside supplier.
Vest Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component
from the outside supplier.
What is the effect on income if Vest purchases the component from the outside supplier?
a. $225,000 decrease
b. $195,000 increase
c. $165,000 decrease
d. $135,000 increase
ANS: A
Make:
Direct materials $ (75,000)
Variable overhead (45,000)
Total $(240,000)
Buy:
Purchase price (40,000  $12.75) $(510,000)
Rental income 45,000
Total $(465,000)
$465,000  $240,000 = $225,000 decrease in income

NOT: 4 min.
25. Miller Company produces speakers for home stereo units. The speakers are sold to retail stores for
$30. Manufacturing and other costs are as follows:
Variable costs per unit: Fixed costs per month:

Direct materials $ 9.00 Factory overhead $120,000
Direct labor 4.50 Selling and admin. 60,000
Factory overhead 3.00 Total $180,000
Distribution 1.50
Total $18.00
The variable distribution costs are for transportation to the retail stores. The current production and
sales volume is 20,000 per year. Capacity is 25,000 units per year.
A Tennessee manufacturing firm has offered a one-year contract to supply speakers at a cost of $17.00
per unit. If Miller Company accepts the offer, it will be able to rent unused space to an outside firm for
$18,000 per year. All other information remains the same as the original data. What is the effect on
profits if Miller Company buys from the Tennessee firm?
a. decrease of $8,000
b. increase of $9,000
c. increase of $8,000
d. decrease of $6,000
ANS: C
Cost to buy ($17  20,000) $340,000
Cost to make:
Variable costs ($16.50  20,000) $330,000
Opportunity costs 18,000 348,000
Profit will increase by $ 8,000

NOT: 4 min.
26. Houston Corporation manufacturers a part for its production cycle. The costs per unit for 5,000 units of
this part are as follows:
Direct materials $ 32
Direct labor 40
Variable overhead 16
Fixed overhead 32
Total $120
Johnson Company has offered to sell Houston Corporation 5,000 units of the part for $112 per unit. If
Houston Corporation accepts Johnson Company's offer, total fixed costs will be reduced to $60,000.
What alternative is more desirable and by what amount is it more desirable?
Alternative Amount
a. Make $ 20,000
b. Make $120,000
c. Buy $ 40,000
d. Buy $100,000
ANS: A
Make ($120  5,000) $600,000
Buy [($112  5,000) + $60,000] 620,000
Make increases profits by $ 20,000

NOT: 4 min.
27. The operations of Smits Corporation are divided into the Child Division and the Jackson Division.
Projections for the next year are as follows:
Child Jackson
Division Division Total
Sales revenue $250,000 $180,000 $430,000
Variable expenses 90,000 100,000 190,000
Contribution margin $160,000 $ 80,000 $240,000
Direct fixed expenses 75,000 62,500 137,500
Segment margin $ 85,000 $ 17,500 $102,500
Allocated common costs 35,000 27,500 62,500
Total relevant benefit (loss) $ 50,000 $(10,000) $ 40,000
Operating income for Smits Corporation as a whole if the Jackson Division were dropped would be
a. $22,500.
b. $40,000.
c. $50,000.
d. $60,000.
ANS: A
$85,000  $62,500 = $22,500

NOT: 3 min.
28. The operations of Knickers Corporation are divided into the Pacers Division and the Bulls Division.
Projections for the next year are as follows:
Pacers Bulls
Division Division Total
Sales revenue $420,000 $252,000 $672,000
Variable expenses 147,000 115,500 262,500
Contribution margin $273,000 $136,500 $409,500
Direct fixed expenses 126,000 105,000 231,000
Segment margin $147,000 $ 31,500 $178,500
Allocated common costs 63,000 47,250 110,250
Total relevant benefit (loss) $ 84,000 $(15,750) $ 68,250
Operating income for Knickers Corporation as a whole if the Bulls Division were dropped would be
a. $99,750.
b. $84,000.
c. $68,250.
d. $36,750.
ANS: D
$147,000  $110,250 = $36,750

NOT: 3 min.
29. The following information pertains to Dodge Company's three products:
A B C
Unit sales per year 250 400 250
Selling price per unit $9.00 $12.00 $ 9.00

Variable costs per unit 3.60 9.00 9.90
Unit contribution margin $5.40 $ 3.00 $(0.90)
Contribution margin ratio 60% 25% (10)%
Assume that product C is discontinued and the extra space is rented for $300 per month. All other
information remains the same as the original data. Annual profits will
a. increase by $75.
b. decrease by $75.
c. increase by $525.
d. remain the same.
ANS: C
(250  $0.90) + $300 = $525

NOT: 3 min.
30. The following information relates to a product produced by Creamer Company:
Direct materials $24

Direct labor 15
Fixed overhead 18
Unit cost $87
Fixed selling costs are $500,000 per year, and variable selling costs are $12 per unit sold. Although
production capacity is 600,000 units per year, the company expects to produce only 400,000 units next
year. The product normally sells for $120 each. A customer has offered to buy 60,000 units for $90
each.
The incremental cost per unit associated with the special order is
a. $84.
b. $81.
c. $69.
d. $64.
ANS: B
Direct labor 15
Variable selling 12
$81

NOT: 3 min.
31. Meco Company produces a product that has a regular selling price of $360 per unit. At a typical
monthly production volume of 2,000 units, the product's average unit cost of goods sold amounts to
$270. Included in this average is $120,000 of fixed manufacturing costs. All selling and administrative
costs are fixed and amount to $30,000 per month.
Meco Company has just received a special order for 1,000 units at $240 per unit. The buyer will pay
transportation, and the regular selling price will not be affected if Meco accepts the order.
Assuming Meco Company has excess capacity, the effect on profits of accepting the order would be
a. $60,000 increase.
b. $60,000 decrease.
c. $30,000 increase.
d. $30,000 decrease.
ANS: C
1,000  [$240  ($270  $120,000/2,000)] = $30,000 increase

NOT: 4 min.
32. The following information relates to a product produced by Creamer Company:

Direct labor 15
Fixed overhead 18
Unit cost $87
Fixed selling costs are $500,000 per year, and variable selling costs are $12 per unit sold. Although
production capacity is 600,000 units per year, the company expects to produce only 400,000 units next
year. The product normally sells for $120 each. A customer has offered to buy 60,000 units for $90
each.
If the firm produces the special order, the effect on income would be a
a. $360,000 increase.
b. $360,000 decrease.
d. $540,000 decrease.
ANS: C
Incremental revenue (60,000  $90) $5,400,000
Less: Incremental costs (60,000  $81) 4,860,000
Incremental profit $ 540,000

NOT: 3 min.
33. Gundy Company manufactures a product with the following costs per unit at the expected production
of 30,000 units:
Direct materials $ 4
Direct labor 12
Variable overhead 6
Fixed overhead 8
The company has the capacity to produce 30,000 units. The product regularly sells for $40. A
wholesaler has offered to pay $32 per unit for 2,000 units.
If the firm chooses to accept the special order and reject some regular sales, the effect on operating
income would be
a. a $20,000 increase.
b. a $16,000 decrease.
c. a $4,000 increase.
d. $-0-.
ANS: B
2,000  ($40  $32) = $16,000 decrease

NOT: 3 min.
34. Walton Company manufactures a product with the following costs per unit at the expected production
level of 84,000 units:

Direct labor 36
Fixed overhead 24
The company has the capacity to produce 90,000 units. The product regularly sells for $120. A
wholesaler has offered to pay $110 per unit for 7,500 units. If the special order is accepted, the effect
on operating income would be a
a. $75,000 decrease.
b. $429,000 increase.
d. $249,000 increase.
ANS: D
Incremental revenue (7,500  $110) $ 825,000
Lost revenue from regular sales (1,500  $120) (180,000)
Incremental costs:
Direct materials (6,000  $12) $ 72,000
Direct labor (6,000  $36) 216,000
Variable overhead (6,000  $18) 108,000 (396,000)
Incremental profit $ 249,000

NOT: 4 min.
35. Rose Manufacturing Company had the following unit costs:

Direct labor 8
Fixed overhead (allocated) 18
A one-time customer has offered to buy 2,000 units at a special price of $48 per unit. Assuming that
sufficient unused production capacity exists to produce the order and no regular customers will be
affected by the order, how much additional profit or loss will be generated by accepting the special
order?
a. $12,000 profit
b. $96,000 profit
c. $84,000 loss
d. $24,000 loss
ANS: A
2,000  ($48  $42) = $12,000

NOT: 3 min.
36. Reggie Corporation manufactures a single product with the following unit costs for 1,000 units:

Direct labor 960
Overhead (30% variable) 1,800
Selling expenses (50% variable) 900
Administrative expenses (10% variable) 840
Total per unit $6,900
Recently, a company approached Reggie Corporation about buying 100 units for $5,100 each.
Currently, the models are sold to dealers for $7,800. Reggie Corporation's capacity is sufficient to
produce the extra 100 units. No additional selling expenses would be incurred on the special order.
How much will income change if the special order is accepted?

a. increase by $398,400
b. decrease by $180,000
c. increase by $111,600
d. no change
ANS: C
100  ($5,100  $2,400  $960  ($1,800  0.30)  ($840  0.10)) = $111,600

NOT: 4 min.
37. Boone Products had the following unit costs:

Direct labor 10
Variable overhead 8
Fixed factory (allocated) 18
A one-time customer has offered to buy 2,000 units at a special price of $48 per unit. Because of
capacity constraints, 1,000 units will need to be produced during overtime. Overtime premium is $8
per unit. How much additional profit or loss will be generated by accepting the special order?
a. $30,000 loss
b. $4,000 loss
c. $24,000 loss
d. $4,000 profit
ANS: D
1,000  ($48  $42) = $6,000
1,000  ($48  $50) = (2,000)
$4,000

NOT: 3 min.
38. Stars Manufacturing Company produces Products A1, B2, C3, and D4 through a joint process. The
joint costs amount to $200,000.
If Processed Further
Units Sales Value Additional Sales
Product Produced at Split-Off Costs Value
A1 3,000 $10,000 $2,500 $15,000
B2 5,000 30,000 3,000 35,000
C3 4,000 20,000 4,000 25,000
D4 6,000 40,000 6,000 45,000
If Product B2 is processed further, profits will

a. increase by $30,000.
b. decrease by $3,000.
c. increase by $32,000.
d. increase by $2,000.
ANS: D
$35,000  $30,000  $3,000 = $2,000 increase

NOT: 3 min.
39. Manning Company uses a joint process to produce products W, X, Y, and Z. Each product may be sold
at its split-off point or processed further. Additional processing costs of specific products are entirely
variable. Joint processing costs for a single batch of joint products are $120,000. Other relevant data
are as follows:
Sales Value Additional Sales Value of

Product at Split-Off Processing Costs Final Product
W $ 40,000 $ 60,000 $ 80,000
X $ 12,000 $ 4,000 $ 20,000
Y $ 20,000 $ 32,000 $120,000
Z $ 28,000 $ 20,000 $ 32,000
$100,000 $116,000 $252,000
Which products should Manning process further?

a. All.
b. All except Z.
c. Y and X.
d. None.
ANS: C
Additional Additional
Product Revenues Costs Differences Decision
W $ 40,000 $60,000 ($20,000) Sell now
X $ 8,000 $ 4,000 $ 4,000 Process on
Y $100,000 $32,000 $68,000 Process on
Z $ 4,000 $20,000 ($16,000) Sell now

NOT: 3 min.
40. Information about three joint products follows:
A B C
Anticipated production 5,000 lbs. 1,000 lbs. 2,000 lbs.
Selling price/lb. at split-off $10 $30 $16
Additional processing costs/lb. after split-off
(all variable) $ 6 $12 $24
Selling price/lb. after further processing $20 $40 $50
The cost of the joint process is $60,000. Which of the joint products should be sold at split-off?
a. A.
b. B.
c. C.
d. Both A and B.
ANS: B
Split-Off Process Further
A $10 $20  $ 6 = $14
B $30 $40  $12 = $28 *Sell now
C $16 $50  $24 = $26

NOT: 3 min.
41. Information about three joint products follows:
X Y Z
Anticipated production 12,000 lbs. 8,000 lbs. 7,000 lbs.
Selling price/lb. at split-off $16 $26 $48
Additional processing costs/lb. after split-off
(all variable) $ 8 $20 $20
Selling price/lb. after further processing $20 $40 $70
The cost of the joint process is $140,000. Which of the joint products should be processed further?
a. X.
b. Y.
c. Z.
d. Both X and Y.
ANS: C
Split-Off Process Further
X $16 $20  $ 8 = $12
Y $26 $40  $20 = $20
Z $48 $70  $20 = $50 *Process on

NOT: 3 min.
Figure 13-2.
ColorPro uses part 87A in the production of color printers. Unit manufacturing costs for part 87A are:
Direct materials $8
Direct labor 2
Variable overhead 1
Fixed overhead 4
ColorPro uses 100,000 units of 87A per year. Filbert Company has offered to sell ColorPro 100,000
units of 87A per year for $12. Fixed overhead is unavoidable.
42. Refer to Figure 13-2. Should ColorPro make or buy the part?
a. Make the part because it will save $100,000 over buying it.
b. Buy the part because it will save $100,000 over making it.
c. Make the part because it will save $1,100,000 over buying it.
d. Buy the part because it will save 1,100,000 over making it.
e. Buy the part because it will save $300,000 over making it.
ANS: A
Make Buy
Direct materials $8 ---
Direct labor 2 ---
Variable overhead 1 ---
Purchase price --- $12
Total relevant costs $11 $12
It is cheaper to make the part in-house.

NOT: 3 min.
43. Refer to Figure 13-2. Now suppose that ColorPro discovers that other costs will increase by $7,000 per
year if the component is purchased rather than made internally. Should ColorPro make or buy the part?
a. Make the part because it will save $100,000 over buying it.
b. Buy the part because it will save $100,000 over making it.
c. Make the part because it will save $107,000 over buying it.
d. Buy the part because it will save $107,000 over making it.
e. Make the part because it will save $10,000 over buying it.
ANS: C
Make Buy
Direct materials $ 800,000 ---
Direct labor 200,000 ---
Variable overhead 100,000 ---
Purchase price --- $1,200,000
Materials handling cost --- 7,000
Total costs $1,100,000 $1,207,000
It is cheaper by $107,000 to make the part in-house.

NOT: 3 min.
44. Refer to Figure 13-2. Which of the following is a qualitative factor that might affect ColorPro's
decision?
a. Filbert has an outstanding reputation for quality.
b. Ordering from Filbert would give ColorPro a chance to see how well Filbert could meet
JIT standards for ColorPro's other products.
c. Filbert is known for the reliability of its products.
d. Making the part in-house would help ColorPro avoid layoffs of direct and indirect labor.
e. All of these.
ANS: E PTS: 1 DIF: Difficulty: Moderate
NOT: 2 min.
Figure 13-6.
Autry Company manufactures veterinary products. One joint process involves refining a chemical
(dactylyte) into two chemicals  dac and tyl. One batch of 5,000 gallons of dactylyte can be converted
to 2,000 gallons of dac and 3,000 gallons of tyl at a total joint processing cost of $12,000. At the split-
off point, dac can be sold for $3 per gallon and tyl can be sold for $4 per gallon. Autry has just learned
of a new process to convert dac into prodac. The new process costs $4,000 and yields 1,700 gallons of
prodac for every 2,000 gallons of dac. Prodac sells for $5 per gallon.
45. Refer to Figure 13-6. What is Autry's profit from refining one batch of dactylyte if both dac and tyl are
sold at the split-off point?
a. $6,000
b. $12,000
c. $7,000
d. $18,000
e. $15,000
ANS: A
Revenue [(2,000  $3) + (3,000  $4)] $18,000
Less: Joint processing cost 12,000
Gross profit $ 6,000

NOT: 3 min.
46. Refer to Figure 13-6. Should Autry process dac further?

a. No, income will be $1,500 lower.
b. No, income will be $5,000 lower.
c. Yes, income will be $1,500 higher.
d. Yes, income will be $5,000 higher.
e. It doesn't matter; income will be the same.
ANS: A
Sell Dac & Tyl Process Dac
@ Split-off Further
Revenue $18,000 $20,500*
Less: further processing of dac 4,000
Less: Joint processing cost 12,000 12,000
Gross profit $ 6,000 $ 4,500
($3  2,000) = $6,000 Sales of Dac that would not occur if action taken.
($5  $1,700) = $8,500 Sales of Prodac that would occur if action taken.
*Revenue 2nd option $18,000  $6,000 + $8,500 = $20,500.
Gross profit is $1,500 less ($4,500  $6,000).

NOT: 4 min.
Figure 13-7.
Ring Company makes telephones. Currently, Ring makes all components of the telephones in-house.
An outside company has offered to supply one component, part number X76, for $12 each. Ring uses
22,000 of these components per year. Costs of X76 are as follows:
Direct materials $3.00

Direct labor $1.50
Variable overhead $2.75
Fixed overhead $5.00
47. Refer to Figure 13-7. Suppose that 30% of the fixed overhead is avoidable if part X76 is not made by
Ring. Should Ring purchase the part from the outside supplier?
a. No, income will decrease by $71,500.
b. No, income will decrease by $15,000.
c. Yes, income will increase by $74,500.
d. No, income will decrease by $10,500.
e. Yes, income will increase by $10,500.
ANS: A
Relevant cost per unit= $3.00 + $1.50 + $2.75 + $1.50 =
$8.75
Fixed overhead = $5.00 - ($5.00 x 70%) = $1.50
Decrease in income if purchased = ($12.00 - $8.75) x
22,000 = $71,500

NOT: 3 min.
48. Refer to Figure 13-7. Assume that all of the fixed overhead is allocated and cannot be avoided. Should
Ring purchase the part from the outside supplier?
a. Yes, income will increase by $104,500.
b. No, income will decrease by $104,500.
c. Yes, income will increase by $78,500.
d. Yes, income will increase by $95,500.
e. Yes, income will increase by $137,500.
ANS: B
Relevant cost per unit = $3.00 + $1.50 + $2.75 = $7.25
Decrease in income if purchased = ($7.25 - $12.00) x
22,000 = $104,500 added cost if purchased

NOT: 3 min.
Figure 13-8.
Kerrigan Lumber Yard receives 12,000 large trees each year that they process into rough logs.
Currently, Kerrigan sells the rough logs for $75 each. Kerrigan is considering processing the logs
further into refined lumber. Each log can be processed into 200 feet of refined lumber at an additional
cost of $0.40 per foot. The refined lumber can be sold for $0.95 per foot.
49. Refer to Figure 13-8. Should Kerrigan process the rough logs into refined lumber?
a. Yes, income will increase by $35 per log.
b. Yes, income will increase by $110 per log.
c. Yes, income will increase by $75 per log.
d. No, income will decrease by $35 per log.
e. No, income will decrease by $110 per log.
ANS: A
Sell at Split-Off Process Further

Revenue $75.00 $190.00
Less: Processing cost $0.00 $80.00
Income $75.00 $110.00
Increase of $35.00 per log ($110.00 - $75.00)

NOT: 3 min.
50. Refer to Figure 13-8. Assume that the cost of getting the 12,000 large trees falls by half. Should
Kerrigan sell the rough logs at split-off or process it further?
a. Process further, the reduction in the cost of trees makes that option more profitable than it
was before.
b. Sell at split-off because the decrease in the cost of the trees makes that option more
profitable than it was before.
c. Sell at split-off, the reduction in the cost of the trees is irrelevant.
d. Process further, the reduction in the cost of the trees will lower further processing costs.
e. Process further because the reduction in the cost of the trees is irrelevant.
NOT: 3 min.
51. A decision that involves potential further processing of joint products is which kind of decision?
a. relevant
b. make-or-buy
d. special-order
e. keep-or-drop
NOT: 2 min.
52. When managers are considering the optimal product mix, they are most concerned with
a. maximizing revenue.
b. minimizing cost.
c. maximizing profit.
d. minimizing selling and administrative expense.
e. balancing productive capacity.
ANS: C PTS: 1 DIF: Difficulty: Moderate
STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-26-Management
Functions KEY: Bloom's: Comprehension NOT: 2 min.
53. Limited resources and limited demand for a product are generally referred to as
a. resources.
b. problems.
c. constraints.
d. optima.
e. contribution factors.
Characteristics/Terminology KEY: Bloom's: Knowledge
NOT: 2 min.
54. The solution of the product mix problem in the presence of multiple constraints requires the use of
a. linear programming.
b. relevant costing.
c. differential costing.
d. excel programming.
e. contribution margin per unit of scarce resource.
ANS: A PTS: 1 DIF: Difficulty: Easy
Characteristics/Terminology KEY: Bloom's: Knowledge
NOT: 2 min.
Figure 13-3.
Elegance Bath Products, Inc. (EBP) makes a variety of ceramic sinks and tubs. EBP has just developed
a line of sinks and tubs made from a mixture of glass and ceramic. The sinks sell for $150 each and
have variable costs of $80. The tubs sell for $600 and have variable costs of $450. The glass and
ceramic sinks and tubs require the use of specialized molding equipment. The specialized molding
equipment has 4,050 hours of capacity per year. A sink uses an average of 2 hours of specialized
molding equipment time; a tub uses an average of 5 hours of specialized molding equipment time.
55. Refer to Figure 13-3. What is the contribution margin per hour of specialized molding equipment time
for sinks?
a. $35
b. $33.33
c. $70
d. $200
e. $68.33
ANS: A
Contribution margin CM per hour of molding for sinks = $70/2 = $35 per hour of constrained resource
(molding)

STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-30-Contribution
Margin KEY: Bloom's: Application NOT: 3 min.
56. Refer to Figure 13-3. Assume that EBP can sell as many as 1,000 sinks and 500 tubs per year. How
many tubs should EBP produce?
a. 1,000
b. 500
c. 410
d. 675
e. 0
ANS: C
Contribution Margin per molding hour for Sinks is ($150  $80)/2 or $35.
Contribution Margin per molding hour for Tubs is ($600  $450)/2 or $30.
To maximize profits, they should make as many sinks as will sell since the margin per molding hour is
greater. Solving for the maximum sinks of 1,000, the number of tubs would be 410.
Expressed mathematically the equation is: 2  sinks + 5  tubs = 4,050

Margin | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application
NOT: 4 min.
57. Refer to Figure 13-3. What is the contribution margin per hour of specialized molding time for tubs?
a. $35
b. $68.33
c. $70
d. $200
e. $30
ANS: E
Contribution margin per hour of molding for tubs = $150/5 = $30

58. Refer to Figure 13-3. Assuming that specialized molding equipment time is the only constrained
resource, and that EBP can sell as many tubs and sinks as it can produce, how many sinks should be
sold?
a. 2,050
b. 2,025
c. 0
d. 4,050
e. 810
ANS: B
Contribution margin per hour of molding for tubs = $150/5 = $30
Contribution margin CM per hour of molding for sinks = $70/2 = $35
Because the contribution margin per hour for sinks ($35) is higher than that of tubs ($30), EBP would
prefer to use the molding equipment as much as possible to make sinks. EBP has capacity for 2,025
sinks (4,050 hours/2 hours).

NOT: 4 min.
Figure 13-4.
Connolly Company produces two types of lamps, classic and fancy, with unit contribution margins of
$13 and $21, respectively. Each lamp must spend time on a special machine. The firm owns four
machines that together provide 18,000 hours of machine time per year. The classic lamp requires 0.20
hours of machine time, the fancy lamp requires 0.50 hours of machine time.
59. Refer to Figure 13-4. What is the contribution margin per hour of machine time for a classic lamp?
a. $26
b. $104
c. $16
d. $65
e. $13
ANS: D
Classic lamp Fancy lamp
Contribution margin per unit $13.00 $21.00
Hours of machine time 0.2 0.5
Contribution margin per hour of machine time $65.00 $42.00

STA: AICPA: FN-Measurement | IMA: Decision Analysis | ACBSP: APC-30-Contribution Margin
KEY: Bloom's: Application NOT: 3 min.
60. Refer to Figure 13-4. What is the contribution margin per hour of machine time for a fancy lamp?
a. $21
b. $42
c. $13
d. $8
e. $6
ANS: B

61. Refer to Figure 13-4. How many of each type of lamp must be sold to optimize total contribution
margin?
a. 18,000 classic lamps; 0 fancy lamps
b. 0 classic lamps; 30,000 fancy lamps
c. 10,000 classic lamps; 10,000 fancy lamps
d. 0 classic lamps; 9,000 fancy lamps
e. 90,000 classic lamps; 0 fancy lamps
ANS: E

Since classic lamps have a contribution margin per hour of machine time of $65 (as opposed to fancy
lamps $42), all machine time should go to the production of classic lamps.
Number of classic lamps = 18,000/0.20 hours per unit = 90,000

62. Refer to Figure 13-4. What is the total contribution margin of the optimal mix of classic and fancy
lamps?
a. $1,280,000
b. $950,000
c. $1,000,000
d. $1,170,000
e. $90,000
ANS: D
Since classic lamps have a contribution margin per hour of machine time of $65 (as opposed to fancy
lamps $42), all machine time should go to the production of classic lamps.
The optimal mix is 90,000 classic lamps and zero fancy lamps.
Total contribution margin = 90,000 x $13 = $1,170,000

Figure 13-5.
Santorino Company produces two models of a component, Model K-3 and Model P-4. The unit
contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14. Each
model must spend time on a special machine. The firm owns two machines that together provide 4,000
hours of machine time per year. Model K-3 requires 15 minutes of machine time; Model P-4 requires
30 minutes of machine time.
63. Refer to Figure 13-5. What is the amount of machine time for model K-3 in terms of percent of a
machine hour?
a. 10%
b. 20%
c. 25%
d. 40%
e. 50%
ANS: C
Model K-3 requires 15/60 or 25% machine hours.

STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental
analysis KEY: Bloom's: Application NOT: 3 min.
64. Refer to Figure 13-5. What is the contribution margin per unit of scarce resource (machine time) for
Model K-3?
a. $24
b. $12
c. $6
d. $14
e. $28
ANS: A
Model K-3 requires 15/60 or 25% machine hours.
Model P-4 requires 30/60 or 50% machine hours.
Model K-3 Model P-4

Contribution margin per unit $ 6.00 $14.00

STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis |ACBSP: APC-30-Contribution
65. Refer to Figure 13-5. What is the amount of machine time for model P-4 in terms of percent of a
machine hour?
a. 10%
b. 20%
c. 25%
d. 30%
e. 50%
ANS: E
Model P-4 requires 30.60 or 50% of machine hours.

STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-33-Incremental
analysis KEY: Bloom's: Application NOT: 3 min.
66. Refer to Figure 13-5. What is the contribution margin per unit of scarce resource (machine time) for
Model P-4?
a. $6
b. $12
c. $24
d. $14
e. $28
ANS: E
Model K-3 requires 15/60 or 0.25 machine hours.
Model P-4 requires 30/60 or 0.50 machine hours.
Model K-3 Model P-4

67. Refer to Figure 13-5. Now suppose that Santorino Company can sell only 5,500 units of each model.
How many units of Model K-3 should be produced?
a. 5,500
b. 312
c. 1,250
d. 2,750
e. 5,000
ANS: E
Model K-3 Model P-4

Since P-4 has the higher contribution margin per hour of machine time, produce 5,500 units of P-4,
which will take 2,750 hours of machine time.
Remaining hours of machine time = 4,000  2,750 = 1,250 hours

Model K-3 units = 1,250/0.25 = 5,000 units

NOT: 4 min.
68. Refer to Figure 13-5. Now suppose that Santorino Company can sell only 5,500 units of each model.
How many units of Model P-4 should be produced?
a. 5,500
b. 5,000
c. 1,250
d. 2,750
e. 1,375
ANS: A
Model K-3 Model P-4

Since P-4 has the higher contribution margin per hour of machine time, produce 5,500 units of P-4.
(Any remaining machine time can be used to produce Model K-3.)

NOT: 4 min.
Figure 13-9.
Sabor Inc. is a medical testing laboratory that performs several tests and analyses for hospitals in the
area. Four of the tests that they perform require the use of a specialized machine that can supply
14,000 hours per year. Information on the four lab tests follows:
Test A Test B Test C Test D

Charging rate $65 $51 $48 $32
Variable cost $25 $18 $13 $8
Machine hours 3 2 1 0.5
69. Refer to Figure 13-9. What is the contribution margin per hour of machine time for Test A?
a. $40
b. $65
c. $25.50
d. $13.33
e. $15.67
ANS: D
(1/3) completed x $40 CM = $13.33

70. Refer to Figure 13-9. What is the contribution margin per hour of machine time for Test B?
a. $20.50
b. $33
c. $16.25
d. $16.50
e. $18
ANS: D
0.5 completed in 1 hour x $33 CM = $16.50

71. Refer to Figure 13-9. What is the contribution margin per hour of machine time for Test C?
a. $48
b. $35
c. $13
d. $16
e. $24
ANS: B
1 completed in 1 hour x $35 CM = $35

72. Refer to Figure 13-9. What is the contribution margin per unit of machine time for Test D?
a. $20
b. $32
c. $8
d. $48
e. $24
ANS: D
2 completed in 1 hour x $24 CM = $48
73. Raffles Company routinely bids on construction jobs. Raffles first determines the budgeted product
cost of the job and then applies a markup of 50%. If a bid of $15,000 is submitted for a new job, which
of the following is true?
a. Budgeted product cost is $15,000.
b. $5,000 is pure profit.
c. All costs pertaining to the job total $15,000.
d. $5,000 includes fixed overhead, selling and administrative expense, and profit.
e. $5,000 includes selling and administrative expense, and profit.
NOT: 4 min.
74. The method of determining the cost of a product or service based on the price that customers are
willing to pay is called
a. relevant costing.
b. differential costing.
c. target costing.
d. product costing.
e. overall costing.
NOT: 2 min.
75. Moss Company charges cost plus 35%. What is the price of an item with cost equal to $65?
a. $73.25
b. $95.80
c. $87.75
d. $65.50
e. $22.75
ANS: C
Price = $65 + ($65 x 35%) = $87.75

NOT: 2 min.
76. Stadium Company charges cost plus 60%. If the price of an item is $260, what is the item's cost?
a. $180
b. $162.50
c. $100
d. $125.50
e. $150.75
ANS: B
Price = COGS + (markup  COGS) or Price = COGS  (1 + markup)
thus COGS = price/(1 + markup)
COGS = $260/(1 + .60)

= $260/1.60
= $162.50

NOT: 3 min.
77. Mattson Construction charges each customer a price equal to the cost of direct materials, direct labor,
and overhead plus 40%. Job #1845 included the following costs:

Direct labor $67,000
Overhead $26,000
What is price charged for Job 1845?

a. $86,000
b. $42,400
c. $106,000
d. $184,800
e. $166,154
ANS: D
Price = ($39,000 + $67,000 + $26,000)  1.4 = $184,800

NOT: 3 min.
78. Super Pet Supplies sets prices at cost plus 70% of cost. The cost of an aquarium start-up kit is $110.
What price does Super Pet Supplies charge for the aquarium start-up kit?
a. $195
b. $200
c. $187
d. $77
e. $180
ANS: C
Price = $110  1.7 = $187

NOT: 3 min.
79. Curtis Company sets price equal to cost plus 50%. Recently, Curtis charged a customer a price of $150
for an item. What was the cost of the item to Curtis?
a. $50
b. $75
c. $100
d. $40
e. $80
ANS: C
Cost = $150/1.50 = $100

NOT: 3 min.
80. Wilson Custom Cabinetry makes cabinets to order and prices the completed jobs at product cost plus
40%. Recently, Wilson finished a job and billed the customer $560. If direct materials for the job cost
$130, and direct labor cost $180, what was the applied overhead for the job?
a. $250
b. $179
c. $350
d. $400
e. $90
ANS: E
Applied overhead = $400*  $130  $180 = $90
*Cost = $560/1.4 = $400

STA: AICPA: FN-Measurement | IMA: Decision Analysis | ACBSP: APC-27-Managerial Accounting
Features/Costs KEY: Bloom's: Application
NOT: 3 min.
81. Welker Company is designing an all-in-one grill and cooler aimed at sports fans. The company
believes that the product can be sold for $180; and it requires a 30% profit on new products. What is
the target cost of the all-in-one grill and cooler?
a. $140
b. $54
c. $175
d. $126
e. $168
ANS: D
Target cost = $180  $54* = $126
*Desired profit = 0.3  $180 = $54

STA: AICPA: FN-Decision Modeling | IMA: Decision Analysis | ACBSP: APC-32-Margin of
safety/sales target KEY: Bloom's: Application NOT: 3 min.
82. Shear-it, Inc., produces paper shredders. Shear-it is considering a new shredder design for home
offices. The marketing vice president believes that a basic unit in a variety of attractive colors could be
sold for $70. Shear-it requires that all new products yield 30% profit. What is the target cost of the new
shredder?
a. $21
b. $91
c. $49
d. $100
e. $63.70
ANS: C
Target cost = $70  $21* = $49
*Desired profit = 0.3  $70 = $21

NOT: 3 min.
83. Brorsen, Inc., has just designed a new product with a target cost of $64. Brorsen requires new product
to have a profit of 20%. What is the target price for the new product?
a. $64
b. $12.80
c. $320
d. $80
e. $53
ANS: D
Target price  desired profit = Target cost
Target price  0.2 (target price) = $64
Target price = $80

NOT: 3 min.
84. Teller Company has designed a caller ID machine with a large screen that can be seen easily from
across the room. The Sales Department believes that this product can be sold for $30 each. Teller
requires that all new products yield 15% profit. What is the target cost of the new product?
a. $26
b. $4.50
c. $30
d. $25.50
e. $28.50
ANS: D
Target cost = $30  $4.50* = $25.50
*Desired profit = 0.15  $30 = $4.50

NOT: 3 min.
85. Fester Company was making a product for $60 and selling it for $80. A competitor began selling the
same product for $68. If Fester is to meet the competition's price, and maintain the same amount of
profit per unit, what is target cost?
a. $40
b. $60
c. $48
d. $17
e. $63
ANS: C
Target cost = $68  20* = $48
*Profit = $80  60 = $20

NOT: 3 min.
86. Victor's Detailing customers would be willing to pay $57 per detail. The company requires an 80%
markup on each job. The average job would cost $30.
Victor's Detailing uses markup pricing to set the price on each job. What is the price Victor should
quote a new customer?
a. $30
b. $24
c. $54
d. $84
e. $240
ANS: C
Price = Cost + (Cost  Markup) or Price = Cost  (1 + markup)
$54 = $30 + ($30  0.80) = $30 + $24

NOT: 3 min.
87. Victor's Detailing customers would be willing to pay $57 per detail. The company requires a 40%
profit on each job. The average job would cost $30.
Victor's Detailing uses target-costing. What is the price they should quote a new customer?
a. $30
b. $24
c. $57
d. $54
e. $84
ANS: C
Target costing is a method of determining the cost of a product or service based on the price (target
price) that customers are willing to pay. They would charge what the market could bear, which is $57.

NOT: 3 min.
88. Victor's Detailing customers would be willing to pay $57 per detail. The company requires a 40%
profit on each job. The average job would cost $30.
Victor's uses target costing. Victor's Detailing should:

a. sell their business.
b. ask their customers to pay more.
c. sell their services at the price customers are willing to pay.
d. find a way to reduce costs.
e. reduce their required percentage to stay in business.
ANS: C
Target cost = Price  (price  profit percent) = $57  ($57  0.40) = $57  $22.80 = $34.20
Victor's cost is below the target cost. He should sell at what the market will pay.

NOT: 3 min.

Chapter 13-Short-Run Decision Making: Relevant Costing: Multiple Choice

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Chapter 13-Short-Run Decision Making: Relevant Costing: Multiple Choice

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Chapter 13—Short-Run Decision Making: Relevant Costing

2. Which of the following is not a step in the decision-making model?

4. Future costs that differ across alternatives are

5. Depreciation of equipment is an example of a(n)

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-1

9. An important qualitative factor to consider regarding a special order is the

Expected maintenance costs of new machine $ 12,000 per year

Which of these items is irrelevant?

Sales ($40 x 600) $24,000

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

Should Piersall accept the order?

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 13-2

Direct materials $1.00

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

Direct materials $150,000

$510,000  $535,000 = $25,000 increase in income

Compare total “buy” cost to total “make” cost

Make cost = 600,000

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

Direct materials $ 75,000

$510,000  $240,000 = $270,000 decrease in income

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

Direct materials $ 75,000

$465,000  $240,000 = $225,000 decrease in income

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

Variable costs per unit: Fixed costs per month:

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

29. The following information pertains to Dodge Company's three products:

Selling price per unit $9.00 $12.00 $ 9.00

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

30. The following information relates to a product produced by Creamer Company:

Direct materials $24

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

32. The following information relates to a product produced by Creamer Company:

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

Direct materials $12

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

35. Rose Manufacturing Company had the following unit costs:

Direct materials $24

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

Direct materials $2,400

How much will income change if the special order is accepted?

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

37. Boone Products had the following unit costs:

Direct materials $24

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

If Product B2 is processed further, profits will

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

Sales Value Additional Sales Value of

Which products should Manning process further?

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

40. Information about three joint products follows:

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

41. Information about three joint products follows:

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 13-2

It is cheaper by $107,000 to make the part in-house.

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 13-2