charter oak acc102 week 8 test part 1

1. By choosing to go into business for himself, Joe Green foregoes the possibility of getting a highly paid job with a large company. This is called a (n)

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2. Which of the following types of cost are always relevant to a decision?

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3. In deciding whether or not to accept a special order, what is the opportunity cost of using machinery for which the firm has sufficient excess capacity to accept the order?

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Use the following to answer questions 4-5:

Classic Furniture produced a batch of 2,000 coffee tables at a cost of $325,000. It is discovered that the entire batch was finished improperly. Classic can sell the tables as seconds for $275,000 or spend an additional $285,000 to refinish them and sell them for $575,000.

4. Refer to the information above. In deciding whether to rework the tables or sell them as is, management should:

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5. Refer to the information above. Which of the following is not relevant to management's decision regarding refinishing the tables or selling them as is?

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Use the following to answer questions 6-9:

Prestige Industries currently manufactures and sells 20,000 power saws per month, although it has the capacity to produce 35,000 units per month. At the 20,000-unit-per-month level of production, the per-unit cost is $45, consisting of $30 in variable costs and $15 in fixed costs. Prestige sells its saws to retail stores for $75 each. Roy Distributors has offered to purchase 5,000 saws per month at a reduced price. Prestige can manufacture these additional units with no change in its present level of fixed manufacturing costs.

6. Refer to the information above. Which of the following is not a relevant factor in Prestige's decision concerning whether to accept the special order from Roy?

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7. Refer to the information above. Assume that Roy Distributors offers to purchase the additional 5,000 saws at a price of $37 per unit. If Prestige accepts this price, Prestige's monthly gross profit on sales of power saws will:

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8. Refer to the information above. Using an incremental analysis approach, Prestige should consider accepting this special order only if the price per unit offered by Roy is at least:

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9. Refer to the information above. Prestige decides to accept the special order for 5,000 units from Roy at a unit sales price that will add $100,000 per month to its operating income. The unit price Prestige is charging Roy is:

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Use the following to answer questions 10-12:

John Stag Corporation manufactures and sells 1,000 tractors each month. The primary component in each tractor is the motor. John Stag has the monthly capacity to produce 1,300 motors. The variable costs associated with manufacturing each motor are shown below:

Fixed manufacturing overhead per month (for up to 1,300 units of production) averages $26,000. Mary Doe, Inc., has offered to purchase 200 motors from John Stag per month to be used in its own outboard motors.

10. Refer to the information above. If Mary Doe's order is rejected, what will be John Stag's average unit cost of manufacturing each motor?

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11. Refer to the information above. What is the incremental cost of producing each additional motor?

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12. Refer to the information above. Assuming John Stag wants to earn a pretax profit of $10,000 on this special order, what price must it charge Mary Doe?

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13. Sterling Products, a manufacturer of aircraft landing gear, makes 1,000 units each year of a special valve used in assembling one of its products.The unit cost of producing this valve includes variable costs of $70 and fixed costs of $60. The valves could be purchased from an outside supplier at $77 each. If the valve were purchased from the outside supplier, 40% of the total fixed costs incurred in producing this valve could be eliminated.Buying the valves from the outside supplier instead of making them would cause the company's operating income to:

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14. Able Company manufactures and sells 20,000 units of product X per month. Each unit of product X sells for $16 and has a contribution margin of $5.If product X is discontinued, $66,000 in fixed monthly overhead costs would be eliminated and there would be no effect on the sales volume of Able Company's other products. If product X is discontinued, Able Company's monthly income before taxes should:

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