Smash Company has 5000 machine hours available annually to manufacture badminton racquets.The following information is available for the two different racquets produced by Smash: \[\begin{array} { | l | l | } \hline \text { Pro } & \\ \hline \text { Unit sales price } & \$ 300 \\ \hline \text { Unit variable costs } & \$ 100 \\ \hline \text { Annual demand } & 1900 \text { units } \\ \hline \text { Machine time } & 1.25 \text { hours per unit } \\ \hline \text { Mid } & \\ \hline \text { Unit sales price } & \$ 125 \\ \hline \text { Unit variable costs } & \$ 80 \\ \hline \text { Annual demand } & 5000 \text { units } \\ \hline \text { Machine time } & 4 \text { hours per unit } \\ \hline \end{array}\] How many units of each racquet should be manufactured for the company to maximize its operating income? (Round your answer to the nearest whole unit.)

A) 1900 units of Pro and 1244 units of Mid B) 1900 units of Pro and 656 units of Mid C) 1900 units of Pro and 5000 units of Mid D) 5000 units of Mid and 656 units of Pro A) 1900 units of Pro and 1244 units of Mid B) 1900 units of Pro and 656 units of Mid C) 1900 units of Pro and 5000 units of Mid D) 5000 units of Mid and 656 units of Pro

The income statement for Slumber Company is divided by its two product lines,blankets and pillows,as follows: \[\begin{array} { | l | r | r | r | } \hline & { \text { Blankets } } &{ \text { Pillows } } & \text { Total } \\ \hline \text { Sales revenue } & \$ 620,000 & \$ 300,000 & \$ 920,000 \\ \hline \text { Variable costs } & ( 455,000 ) & ( 241,000 ) & ( 696,000 ) \\ \hline \text { Contribution margin } & \$ 165,000 & \$ 59,000 & \$ 224,000 \\ \hline \text { Fixed costs } & ( 74,000 & \underline { ( 74,000 ) } & ( 148,000 ) \\ \hline \text { Operating income (loss) } & \$ 91,000 & \$ ( 15,000 ) & \$ 76,000 \\ \hline \end{array}\] Slumber is considering eliminating the pillows product line.If this line is eliminated,Slumber will be able to eliminate $74,000 of total fixed costs.How would this business decision impact operating income?

A) increase of $74,000 in operating income B) decrease of $59,000 in operating income C) increase of $133,000 in operating income D) increase of $15,000 in operating income A) increase of $74,000 in operating income B) decrease of $59,000 in operating income C) increase of $133,000 in operating income D) increase of $15,000 in operating income

Abbott Company is a price-taker and uses target pricing.The company has just done an analysis of its revenues,costs,and desired profits and has calculated its target full product cost.Assume all products produced are sold.Refer to the following information: \[\begin{array} { | l | l | l | } \hline \text { Target full product cost } & \$ 510,000 & \text { per year } \\ \hline \text { Actual fixed cost } & \$ 280,000 & \text { per year } \\ \hline \text { Actual variable cost } & \$ 2 & \text { per unit } \\ \hline \text { Production volume } & 152,000 & \text { units per year } \\ \hline \end{array}\] Actual costs are currently higher than target full product cost.Assuming that fixed costs cannot be reduced,what are the target total variable costs?

A) $280,000 B) $304,000 C) $230,000 D) $510,000 A) $280,000 B) $304,000 C) $230,000 D) $510,000

Castillo Corporation has provided you with the following budgeted income statement for one of its products: \[\begin{array} { | l | r | } \hline \text { Sales revenue } & \$ 700,000 \\ \hline \text { Variable costs } & ( 430,000 ) \\ \hline \text { Contribution margin } & \$ 270,000 \\ \hline \text { Fixed costs } & \underline { ( 320,000 ) } \\ \hline \text { Operating loss } & \$ ( 50,000 \\ \hline \end{array}\] Castillo has just encountered environmental problems with the product and will be forced to drop the product line altogether.Castillo will be able to eliminate 60% of the fixed costs.What will be the impact on operating income of the company?

A) Operating income will decrease by $192,000. B) Operating income will decrease by $78,000. C) Operating income will increase by $192,000. D) Operating income will increase by $78,000. A) Operating income will decrease by $192,000. B) Operating income will decrease by $78,000. C) Operating income will increase by $192,000. D) Operating income will increase by $78,000.

Bradley Industries is considering replacing a machine that is presently used in its production process. Which of the following is irrelevant to the replacement decision? \[\begin{array} { | l | r | r | } \hline & \text { Old Machine } & \begin{array} { l } \text { Replacement } \\ \text { Machine } \end{array} \\ \hline \text { Original cost } & \$ 55,000 & \$ 45,000 \\ \hline \text { Remaining useful life in years } & 5 & 5 \\ \hline \text { Current age in years } & 5 &0 \\ \hline \text { Book value } & \$ 33,000 & \\ \hline \text { Current disposal value in cash } & \$ 9000 & \$ 0 \\ \hline \text { Auture disposal value in cash (in 5 years) } & \$ 8000 & \$ 4500 \\ \hline \end{array}\] Which of the information provided in the table is irrelevant to the replacement decision?

A) the sales price of the new machine B) the original cost of the old machine C) the current disposal value of the old machine D) the annual cash operating costs for both machines A) the sales price of the new machine B) the original cost of the old machine C) the current disposal value of the old machine D) the annual cash operating costs for both machines

Cheong Automobile Company fabricates automobiles.Each vehicle includes one water pump,which is currently made in-house.Details of the water pump assembly are as follows: \[\begin{array} { | l | r | l | } \hline \text { Volume } & 1300 & \text { units per month } \\ \hline \text { Variable cost per unit } & \$ 10.50 & \text { per unit } \\ \hline \text { Fixed costs } & \$ 10,000 & \text { per month } \\ \hline \end{array}\] An Indonesian factory has offered to supply Cheong Automobile Company with ready-made units for a cost of $15 for each water pump.Assume that Cheong's fixed costs are unavoidable and that Cheong will not be able to use the excess capacity in any profitable manner.If Cheong decides to outsource,monthly operating income will ________.

A) increase by $5850 B) decrease by $10,000 C) increase by $10,000 D) decrease by $5850 A) increase by $5850 B) decrease by $10,000 C) increase by $10,000 D) decrease by $5850

Exam 25: Short-Term Business Decisions

Alieia Boat Company manufactures 10 luxury yachts per month.A navigation system is included in each yacht.Alieia Boat manufactures the navigation system in-house but is considering the possibility of outsourcing this function.At present,the variable cost per unit is $300,and the fixed costs are $38,000 per month.If it outsources the security system,fixed costs could be reduced by half,and the vacant facilities could be rented out to earn $3000 per month of rental income.What is the maximum contract cost that Alieia should pay for outsourcing?

(Multiple Choice)

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Question 21

Smash Company has 5000 machine hours available annually to manufacture badminton racquets.The following information is available for the two different racquets produced by Smash: Pro Unit sales price \ 300 Unit variable costs \ 100 Annual demand 1900 units Machine time 1.25 hours per unit Mid Unit sales price \ 125 Unit variable costs \ 80 Annual demand 5000 units Machine time 4 hours per unit How many units of each racquet should be manufactured for the company to maximize its operating income? (Round your answer to the nearest whole unit.)

(Multiple Choice)

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Question 22

Electron Manufacturing is a price-taker.Electron produces large spools of electrical wire in a highly competitive market; thus,the company uses target pricing.The current market price of the electric wire is $780 per unit.The company has $3,200,000 in average assets,and the desired profit is a return of 4% on assets.Assume all products produced are sold.The company provides the following information: Sales volume 100,000 units per year Variable costs \ 720 per unit Fixed costs \ 13,000,000 per year If variable costs cannot be reduced,how much reduction in fixed costs will be needed to achieve the profit target?

(Multiple Choice)

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Question 23

Management of Bluebird Manufacturing is considering whether to drop a product line.So far,management has determined that the product has a negative contribution margin and that lost revenues are less than the total cost savings.In making the final decision,what are other questions that the management of Bluebird should consider?

(Essay)

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Question 24

The income statement for Slumber Company is divided by its two product lines,blankets and pillows,as follows: Blankets Pillows Total Sales revenue \ 620,000 \ 300,000 \ 920,000 Variable costs (455,000) (241,000) (696,000) Contribution margin \ 165,000 \ 59,000 \ 224,000 Fixed costs (74,000 (148,000) Operating income (loss) \ 91,000 \ (15,000) \ 76,000 Slumber is considering eliminating the pillows product line.If this line is eliminated,Slumber will be able to eliminate $74,000 of total fixed costs.How would this business decision impact operating income?

(Multiple Choice)

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Question 25

An outsourcing decision is a choice made by management about whether to make a component internally or buy it from an outside source.

(True/False)

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Question 26

Abbott Company is a price-taker and uses target pricing.The company has just done an analysis of its revenues,costs,and desired profits and has calculated its target full product cost.Assume all products produced are sold.Refer to the following information: Target full product cost \ 510,000 per year Actual fixed cost \ 280,000 per year Actual variable cost \ 2 per unit Production volume 152,000 units per year Actual costs are currently higher than target full product cost.Assuming that fixed costs cannot be reduced,what are the target total variable costs?

(Multiple Choice)

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Question 27

A company spent $750,000 to produce 225,000 gallons of a chemical free cleaning product that can be sold for $6.00 per gallon.This product can be further processed into a household cleaning solution that can be sold for $8.50 per gallon.It will cost $360,000 to process the chemical free product into the household cleaning solution. Prepare a differential analysis to determine if the product should be processed further.Discuss the results.

(Essay)

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Question 28

Castillo Corporation has provided you with the following budgeted income statement for one of its products: Sales revenue \ 700,000 Variable costs (430,000) Contribution margin \ 270,000 Fixed costs Operating loss \ (50,000 Castillo has just encountered environmental problems with the product and will be forced to drop the product line altogether.Castillo will be able to eliminate 60% of the fixed costs.What will be the impact on operating income of the company?

(Multiple Choice)

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Question 29

A chemical company spent $531,000 to produce 151,000 gallons of a chemical that can be sold for $5.00 per gallon.This chemical can be further processed into a weed killer that can be sold for $8.20 per gallon.It will cost $250,000 to process the chemical into the weed killer.Which of the following is TRUE?

(Multiple Choice)

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Question 30

Roseland Company is trying to decide whether to continue to manufacture a particular component or to buy the component from an outside supplier.Which of the following is irrelevant with respect to this decision?

(Multiple Choice)

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Question 31

Lightning Semiconductors produces 400,000 hi-tech computer chips per month.Each chip uses a component that Lightning makes in-house.The variable costs to make the component are $1.30 per unit,and the fixed costs are $1,300,000 per month.The company has been approached by a foreign producer who can supply the component,within acceptable quality standards,for $1.20 each.The fixed costs are unavoidable,and Lightning would have no other use for the facilities currently employed in making the component.What would be the effect on operating income if the company decides to outsource?

(Multiple Choice)

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Question 32

Target full product cost equals the revenue at the market price minus the desired profit.

(True/False)

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Question 33

When replacing an old asset with a new one,the original purchase price of the old asset represents a(n)________ cost.

(Multiple Choice)

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Question 34

Carlos Naturals manufactures bulk quantities of cleaning fluids.The company currently sells 600 containers a month at a sales price of $22 per unit.The addition of a new disinfectant will result in a sales price of $25 per unit for the improved product.It would cost a total of $3800 per month to make the alteration.Operating income would ________.

(Multiple Choice)

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Question 35

Regarding relevant nonfinancial information,which of the following statements is incorrect?

(Multiple Choice)

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Question 36

Bradley Industries is considering replacing a machine that is presently used in its production process. Which of the following is irrelevant to the replacement decision? Old Machine Replacement Machine Original cost \ 55,000 \ 45,000 Remaining useful life in years 5 5 Current age in years 5 0 Book value \ 33,000 Current disposal value in cash \ 9000 \ 0 Auture disposal value in cash (in 5 years) \ 8000 \ 4500 Which of the information provided in the table is irrelevant to the replacement decision?

(Multiple Choice)

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Question 37

A company should process its product further if the additional revenue from further processing exceeds the additional cost of further processing.

(True/False)

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Question 38

Cheong Automobile Company fabricates automobiles.Each vehicle includes one water pump,which is currently made in-house.Details of the water pump assembly are as follows: Volume 1300 units per month Variable cost per unit \ 10.50 per unit Fixed costs \ 10,000 per month An Indonesian factory has offered to supply Cheong Automobile Company with ready-made units for a cost of $15 for each water pump.Assume that Cheong's fixed costs are unavoidable and that Cheong will not be able to use the excess capacity in any profitable manner.If Cheong decides to outsource,monthly operating income will ________.

(Multiple Choice)

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Question 39

Assuming there are no other significant considerations,a product line with a negative contribution margin should be dropped.

(True/False)

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Question 40

Showing 21 - 40 of 200

An outsourcing decision is a choice made by management about whether to make a component internally or buy it from an outside source.

Roseland Company is trying to decide whether to continue to manufacture a particular component or to buy the component from an outside supplier.Which of the following is irrelevant with respect to this decision?

Target full product cost equals the revenue at the market price minus the desired profit.

When replacing an old asset with a new one,the original purchase price of the old asset represents a(n)________ cost.

Regarding relevant nonfinancial information,which of the following statements is incorrect?

A company should process its product further if the additional revenue from further processing exceeds the additional cost of further processing.

Assuming there are no other significant considerations,a product line with a negative contribution margin should be dropped.

Accounting and the Business Environment

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The Adjusting Process

Completing the Accounting Cycle

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Accounting Information Systems

Internal Control and Cash

Receivables

Plant Assets,natural Resources,and Intangibles

Current Liabilities and Payroll

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Long-Term Liabilities

Investments

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

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Cost-Volume-Profit Analysis

Master Budgets

Flexible Budgets and Standard Cost Systems

Cost Allocation and Responsibility Accounting

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