36) Assume that Pett can buy 5,000 units of the part from another producer for $22 each. The facilities currently used to make the part could be rented out to another manufacturer for $20,000 a year. Pett should

A) make the part as that would save $4 per unit.

B) make the part as that would save the company $5,000.

C) buy the part as that would save $3 per unit.

D) buy the part as that would save the company $20,000.

37) Assume that Pett can buy 5,000 units of the part from another producer for $21 each. The current facilities could be used to make 5,000 units of a product that has a contribution margin of $5 per unit. Fixed factory overhead costs to produce this new product would be exactly the same as for the currently produced part. Pett should

A) continue to make the part and earn an extra $10,000 in profit.

B) buy the part and produce the new product and earn an extra $1 per unit contribution to profit.

C) continue to make the part and earn an extra $2 per unit contribution to profit.

D) buy the part and produce the new product and earn an extra $5 per unit contribution to profit.

Barker Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 5,000 units of this part are as follows:

Direct materials

$   90,000

Direct labour

   130,000

Variable factory overhead

     60,000

Fixed factory overhead

   140,000

Total costs

$420,000

Of the fixed factory overhead costs, $60,000 is avoidable.

38) Blass Company has offered to sell 5,000 units of the same part to Barker for $72 per unit. Assuming there is no other use for the  facilities, Barker should

A) make the part as this would save $12 per unit.

B) buy the part as this would save $12 per unit.

C) buy the part as this would save the company $60,000.

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

39) Assuming no other use of their facilities, the highest price that Barker should be willing to pay for 5,000 units of the part is

A) $420,000.

B) $280,000.

C) $340,000.

D) $240,000.

40) Assume that Barker can buy 5,000 units of the part from another producer for $88 each. The facilities currently used to make the part could be rented out to another manufacturer for $80,000 a year.  Barker should

A) make the part as that would save $16 per unit.

B) make the part as that would save the company $20,000.

C) buy the part as that would save $12 per unit.

D) buy the part as that would save the company $80,000.

41) Assume that Barker can buy 5,000 units of the part from another  producer for $84 each. The current facilities could be used to make  5,000 units of a product that has a contribution margin of $20 per  unit. Fixed factory overhead costs to produce this new product would  be exactly the same as for the currently produced part. Barker should

A) continue to make the part and earn an extra $40,000 in profit.

B) buy the part and produce the new product and earn an extra $4 per unit contribution to profit.

C) continue to make the part and earn an extra $8 per unit contribution to profit.

D) buy the part and produce the new product and earn an extra $20 per unit contribution to profit.

Mann Corporation has a joint process, which produces three products, A, B and C. Each product may be sold at split-off or processed further and then sold. Joint processing costs for a year amount to $125,000. Other relevant data are as follows:

Product

Sales Value

at Split-off

Separable Processing Costs after Split-off

Sales Value

at Completion

A

$160,000 

$20,000 

$200,000 

B

62,500

32,500

95,000 

C

32,000 

25,000 

50,000

42) Once product A is produced, processing it further will cause profits to

A) increase by $40,000.

B) decrease by $20,000.

C) decrease by $40,000.

D) increase by $20,000.

43) Product B

A) should be processed further to increase profits by $32,500.

B) should be sold at split-off since processing further would only reduce profits by $32,500.

C) should be processed further to increase profits by $95,000.

D) can be processed further or sold at split-off. There is no difference in profit.

44) To maximize profits, which products should Mann process further?

A) Product C only

B) Product B only

C) Product A only

D) Products A, B and C

45) In processing Product C further,

A) profits will decrease by $7,000.

B) incremental profits will exceed incremental costs.

C) profits will increase by $25,000.

D) the additional revenue produced will exceed the additional costs.

Avey Corporation has a joint process which produces three products, M, L and B. Each product may be sold at split-off or processed further and then sold. Joint processing costs for a year amount to $500,000. Other relevant data are as follows:

Product

Sales Value

at Split-off

Separable Processing Costs after Split-off

Sales Value

at Completion

M

$640,000 

$80,000 

$800,000 

L

250,000

130,000

380,000 

B

128,000 

100,000 

200,000



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