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A. $900,000.
B. $600,000.
C. $700,000.
D. $1,100,000.
E. None of the other answers are correct.
A. $508,000.
B. $529,000.
C. $531,000.
D. $553,000.
E. None of the other answers are correct.
A. variable costs change on a per-unit basis and change in total as activity changes.
B. fixed costs are constant on a per-unit basis and change in total as activity
changes.
C. fixed costs are constant on a per-unit basis and are constant in total as activity
changes.
D. fixed costs change on a per-unit basis and are constant in total as activity
changes.
E. variable costs are constant on a per-unit basis and are constant in total as activity
changes.
7. Briefly define and discuss the terms in each of the pairs that follow.
A. Direct and indirect costs
B. Direct materials and indirect materials
C. Manufacturing overhead and direct labour
9. Seagull, Inc., uses the high-low method to analyse cost behaviour. The company
observed that at 20,000 machine hours of activity, total maintenance costs averaged
$7.50 per hour. When activity jumped to 50,000 machine hours, which was still within
the relevant range, the average total cost per machine hour was $6. On the basis of
this information, the company's fixed maintenance costs were:
A. $250,000.
B. $50,000.
C. $150,000.
D. $300,000.
E. None of the other answers is correct.
10. Consider the graphs that follow (the horizontal axis represents activity; the
vertical axis represents total dollars).
I. The cost of electricity during peak demand periods, which is based on the following
schedule:
Up to 20,000 kilowatt hours (KWH): $4,000
Above 20,000 kilowatt hours: $4,000 + $0.02 per KWH
11. Majestic sells a single product at $14 per unit. The firm's most recent income
statement revealed unit sales of 80,000, variable costs of $800,000, and fixed costs
of $560,000. Management believes that a $3 drop in selling price will boost unit sales
volume by 20%. Which of the following correctly depicts how these two changes will
affect the company's break-even point?
A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E
12. Falcon Company is operating at capacity and desires to add a new service to its
rapidly expanding business. The service should be added as long as service
revenues exceed:
A. variable costs.
B. fixed costs.
C. the sum of variable costs and fixed costs.
D. the sum of variable costs and any related opportunity costs.
E. the sum of variable costs, fixed costs, and any related opportunity costs.
13. Which of the following costs should be used when choosing between two
decision alternatives?
A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E
A. I only.
B. II only.
C. III only.
D. I and II.
E. II and III.
15. Okayama Enterprises, which produces various goods, has limited processing
hours at its manufacturing plant. The following data apply to product no. 333:
Sales price per unit: $7.50
Variable cost per unit: $6.50
Process time per unit: 5 hours
Management is now studying whether to devote the firm's limited hours to product
no. 333 or to other products. What key dollar amount should management focus on
when determining no. 333's "value" to the firm and deciding the best course of action
to follow?
A. $0.20.
B. $1.00.
C. $5.00.
D. $7.50.
E. $6.50.
16. Triton Manufacturing has 27,000 labour hours available for producing X and Y.
Consider the following information:
If Triton follows proper managerial accounting practices, how many units of Product
X should it produce?
A. 5,000.
B. 1,500.
C. 8,000.
D. 4,500.
E. 6,000.
17. The following costs relate to a variety of decision settings:
Required:
Consider each of the nine costs listed and determine whether it is relevant or
irrelevant to the decision cited. If the cost is irrelevant, briefly explain why.
18. Farifield Corporation manufactures faucets. Several weeks ago, the company
received a special-order inquiry from KEK, Inc. KEK desires to market a faucet
similar to Fairfield's model no. 88 and has offered to purchase 3,000 units. The
following data are available:
Cost data for Fairfield's model no. 88 faucet: direct materials, $45; direct labor, $30
(2 hours at $15 per hour); and manufacturing overhead, $70 (2 hours at $35 per
hour).
The normal selling price of model no. 88 is $180; however, KEK has offered
Fairfield only $115 because of the large quantity it is willing to purchase.
KEK requires a design modification that will allow a $4 reduction in direct-material
cost.
Fairfield's production supervisor notes that the company will incur $8,700 in
additional set-up costs and will have to purchase a $3,300 special device to
manufacture these units. The device will be discarded once the special order is
completed.
Total manufacturing overhead costs are applied to production at the rate of $35 per
labour hour. This figure is based, in part, on budgeted yearly fixed overhead of
$624,000 and planned production activity of 24,000 labour hours.
Fairfield will allocate $5,000 of existing fixed administrative costs to the order as
"part of the cost of doing business."
Required:
A. One of Fairfield's staff accountants wants to reject the special order because
"financially, it's a loser." Do you agree with this conclusion if Fairfield currently has
excess capacity? Show calculations to support your answer.
B. If Fairfield currently has no excess capacity, should the order be rejected from a
financial perspective? Briefly explain.
C. Assume that Fairfield currently has no excess capacity. Would outsourcing be an
option that Fairfield could consider if management truly wanted to do business with
KEK? Briefly discuss, citing several key considerations for Fairfield in your answer.