21) What is the change in operating profits if the one-time-only special order for 1,000 units is accepted for $180 a unit by Welch?

A) $70,000 increase in operating profits

B) $10,000 increase in operating profits

C) $10,000 decrease in operating profits

D) $75,000 decrease in operating profits

E) $40,000 increase in operating profits

Answer the following question(s) using the information below.

 

Grant’s Kitchens is approached by Ms. Tammy Wang, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. The following per unit data apply for sales to regular customers:

 

Direct materials

$455

Direct labour

300

Variable manufacturing support

45

Fixed manufacturing support

100

       Total manufacturing costs

$900

Markup (60%)

540

Targeted selling price

$1440

 

Grant’s Kitchens has excess capacity. Ms. Wang wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit.

 

22) For Grant’s Kitchens, what is the minimum acceptable price of this one-time-only special order?

A) $830

B) $900

C) $930

D) $1,440

E) $800

 

23) Other than price, what other item should Grant’s Kitchens consider before accepting this one-time-only special order?

A) reaction of shareholders

B) management stock options

C) demand for cherry cabinets

D) price is the only consideration

E) reaction of existing customers to the lower price offered to Ms. Wang

24) For make-or-buy decisions, a supplier’s ability to deliver the item on a timely basis is considered a(n)

A) qualitative factor.

B) relevant cost.

C) differential factor.

D) opportunity cost.

E) quantitative factor.

 

Answer the following question(s) using the information below.

 

Konrade’s Engine Company manufactures part TE456 used in several of its engine models. Monthly production costs for 1,000 units are as follows:

 

Direct materials

$40,000

Direct labour

10,000

Variable overhead costs

30,000

Fixed overhead costs

20,000

        Total costs

$100,000

 

It is estimated that 10% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier. Konrade’s Engine Company has the option of purchasing the part from an outside supplier at $85 per unit.

 

25) If Konrade’s Engine Company accepts the offer from the outside supplier, the monthly avoidable costs (costs that will no longer be incurred) total

A) $80,000.

B) $98,000.

C) $50,000.

D) $100,000.

E) $82,000.

26) If Konrade’s Engine Company purchases 1,000 TE456 parts from the outside supplier per month, then its monthly operating income will

A) increase by $13,000.

B) increase by $15,000.

C) decrease by $5,000.

D) decrease by $3,000.

E) decrease by $35,000.

 

27) The maximum price that Konrade’s Engine Company should be willing to pay the outside supplier is

A) $80 per TE456 part.

B) $82 per TE456 part.

C) $98 per TE456 part.

D) $100 per TE456 part.

E) $50 per TE456 part.

Answer the following question(s) using the information below.

 

Schmidt Corporation produces a part that is used in the manufacture of one of its products. The costs associated with the production of 10,000 units of this part are as follows:

 

Direct materials

$45,000

Direct labour

65,000

Variable factory overhead

30,000

Fixed factory overhead

70,000

        Total costs

$210,000

 

Of the fixed factory overhead costs, $30,000 is avoidable.

 

28) Phil Company has offered to sell 10,000 units of the same part to Schmidt Corporation for $18 per unit. Assuming there is no other use for the facilities, Schmidt should

A) make the part, as this would save $3 per unit.

B) buy the part, as this would save $3 per unit.

C) make the part, as this would save $4 per unit.

D) make the part, as this would save $1 per unit.

E) buy the part, as this would save $4 per unit.

 

29) Assuming no other use of their facilities, the highest price that Schmidt should be willing to pay for 10,000 units of the part is

A) $210,000.

B) $170,000.

C) $110,000.

D) $180,000.

E) $140,000.

30) Assuming accepting the offer creates excess facility capacity that can be used to produce 2,000 units of another product that has a unit selling price of $24, variable costs of $12, and fixed cost allocation of $3. What is the highest price that Schmidt should be willing to pay Phil Company for 10,000 units of the part?

A) $146,000

B) $164,000

C) $116,000

D) $134,000

E) $186,000

 

 

 



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