fiannce and data bank

Question # 00003938 Posted By: smartwriter Updated on: 11/23/2013 07:40 AM Due on: 11/30/2013
Subject Accounting Topic Accounting Tutorials:
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31. Torrey Pines is studying whether to outsource its Human Resources (H/R) activities. Salaried professionals who earn $390,000 would be terminated; in contrast, administrative assistants who earn $120,000 would be transferred elsewhere in the organization. Miscellaneous departmental overhead (e.g., supplies, copy charges, overnight delivery) is expected to decrease by $30,000, and $25,000 of corporate overhead, previously allocated to Human Resources, would be picked up by other departments. If Torrey Pines can secure needed H/R services locally for $410,000, how much would the company benefit by outsourcing?

A. $10,000.

B. $35,000.

C. $130,000.

D. $155,000.

E. Nothing, as it would be cheaper to keep the department open.

32. Donnelly, a division of Dakota Enterprises, currently makes 100,000 units of a product that has created a number of manufacturing problems. Donnelly's costs follow.

Manufacturing costs:





Allocated corporate administrative cost


If Donnelly were to discontinue production, fixed manufacturing costs would be reduced by 80%. The relevant cost of deciding whether the division should purchase the product from an outside supplier is:

A. $420,000.

B. $490,000.

C. $540,000.

D. $570,000.

E. $640,000.

33. Maddox, a division of Stanley Enterprises, currently performs computer services for various departments of the firm. One of the services has created a number of operating problems, and management is exploring whether to outsource the service to a consultant. Traceable variable and fixed operating costs total $80,000 and $25,000, respectively, in addition to $18,000 of corporate administrative overhead allocated from Stanley. If Maddox were to use the outside consultant, fixed operating costs would be reduced by 70%. The irrelevant costs in Maddox's outsourcing decision total:

A. $17,500.

B. $18,000.

C. $25,000.

D. $25,500.

E. some other amount.

34. Which of the following statements regarding costs and decision making is correct?

A. Fixed costs must be considered only on a per-unit basis.

B. Per-unit fixed cost amounts are valid only for make-or-buy decisions.

C. Per-unit fixed costs can be misleading because such amounts appear to behave as variable costs when, in actuality, the amounts are related to fixed expenditures.

D. Sunk costs can be misleading in make-or-buy decisions because these amounts appear to be relevant differential costs.

E. Opportunity costs should be ignored when evaluating decision alternatives.

35. An architecture firm currently offers services that appeal to both individuals and commercial clients. If the firm decides to discontinue services to individuals because of ongoing losses, which of the following costs could the company likely avoid?

A. Allocated corporate overhead.

B. Building depreciation.

C. Insurance.

D. Variable operating costs.

E. Monthly installment payments on general-purpose, computer drafting equipment.

36. Occidental is contemplating dropping a product because of ongoing losses. Costs that would be relevant in this situation would include variable manufacturing costs as well as:

A. factory depreciation.

B. avoidable fixed costs.

C. unavoidable fixed costs.

D. allocated corporate administrative costs.

E. general corporate advertising.

37. Coastal Airlines has a significant presence at the San Jose International Airport and therefore operates the Emerald Club, which is across from gate 36 in terminal 1. The Emerald Club provides food and business services (e.g., data ports) for the company's frequent flyers. Consider the following selected costs of Club operation:

1. Receptionist and supervisory salaries

2. Catering

3. Terminal depreciation (based on square footage)

4. Airport fees (computed as a percentage of club revenue)

5. Allocated Coastal administrative overhead

Management is exploring whether to close the club and expand the seating area for gate 36. Which of the preceding expenses would the airline classify as unavoidable?

A. 3.

B. 4.

C. 5.

D. 3, 5.

E. The correct answer is not listed.

38. The Shoe Department at the Baton Rouge Department Store is being considered for closure. The following information relates to shoe activity:

Sales revenue


Variable costs:

Cost of goods sold


Sales commissions


Fixed operating costs


If 70% of the fixed operating costs are avoidable, should the Shoe Department be closed?

A. Yes, Baton Rouge would be better off by $23,000.

B. Yes, Baton Rouge would be better off by $50,000.

C. No, Baton Rouge would be worse off by $13,000.

D. No, Baton Rouge would be worse off by $40,000.

E. None of the above.

39. Somerset Corporation is composed of five divisions, and each division is allocated a share of Somerset overhead to make divisional managers aware of the cost of running the corporate headquarters. The following information relates to the Metro Division:



Variable operating costs


Traceable fixed operating costs


Allocated corporate overhead


If the Metro Division is closed, 100% of the traceable fixed operating costs can be eliminated. What will be the impact on Somerset's overall profitability if the Metro Division is closed?

A. Decrease by $200,000.

B. Decrease by $500,000.

C. Decrease by $2,100,000.

D. Decrease by $2,400,000.

E. None of the above.

40. Ortega Interiors provides design services to residential and commercial clients. The residential services produce a contribution margin of $450,000 and have traceable fixed operating costs of $480,000. Management is studying whether to drop the residential operation. If closed, the fixed operating costs will fall by $370,000 and Ortega's net income will:

A. increase by $30,000.

B. increase by $80,000.

C. increase by $340,000.

D. decrease by $80,000.

E. decrease by $340,000.

Use the following to answer questions 41-42:

HiTech manufactures two products: Regular and Super. The results of operations for 20x1 follow.












Less: Cost of goods sold




Gross margin

$ 60,000



Less: Selling expenses




Operating income

$ 0



Fixed manufacturing costs included in cost of goods sold amount to $3 per unit for Regular and $20 per unit for Super. Variable selling expenses are $4 per unit for Regular and $20 per unit for Super; remaining selling amounts are fixed.

41. HiTech wants to drop the Regular product line. If the line is dropped, company-wide fixed manufacturing costs would fall by 10% because there is no alternative use of the facilities. What would be the impact on operating income if Regular is discontinued?

A. $0.

B. $10,400 increase.

C. $20,000 increase.

D. $39,600 decrease.

E. None of the above.

42. Disregard the information in the previous question. If HiTech eliminates Regular and uses the available capacity to produce and sell an additional 1,500 units of Super, what would be the impact on operating income?

A. $28,000 increase

B. $45,000 increase

C. $55,000 increase

D. $85,000 increase

E. None of the above.

43. When deciding whether to sell a product at the split-off point or process it further, joint costs are not usually relevant because:

A. such amounts do not help to increase sales revenue.

B. such amounts only slightly increase a company's sales margin.

C. such amounts are sunk and do not change with the decision.

D. the sales revenue does not decrease to the extent that it should, if compared with separable processing.

E. such amounts reflect opportunity costs.

44. Product costs incurred after the split-off point in a joint processing environment are termed:

A. separable processing costs.

B. joint product costs.

C. non-relevant costs.

D. scrap costs.

E. spoilage costs.

45. Foster Company is considering whether to sell Retox at the split-off point or subject it to further processing and produce a more refined product known as Retox-F. Consider the following items:

I. The selling price of Retox-F

II. The joint processing cost of Retox.

III. The separable cost of producing Retox-F.

Which of the above items is (are) relevant to Foster's decision to process Retox into Retox-F?

A. I only.

B. II only.

C. III only.

D. I and II.

E. I and III.

46. Lido manufactures A and B from a joint process (cost = $80,000). Five thousand pounds of A can be sold at split-off for $20 per pound or processed further at an additional cost of $20,000 and then sold for $25. Ten thousand pounds of B can be sold at split-off for $15 per pound or processed further at an additional cost of $20,000 and later sold for $16. If Lido decides to process B beyond the split-off point, operating income will:

A. increase by $10,000.

B. increase by $20,000.

C. decrease by $10,000.

D. decrease by $20,000.

E. decrease by $58,000.

47. India Corporation has $200,000 of joint processing costs and is studying whether to process J and K beyond the split-off point. Information about J and K follows.

Product J

Product K

Tons produced



Separable variable processing costs beyond split-off



Selling price per ton at split-off



Selling price per ton after additional processing



If India desires to maximize total company income, what should the firm do with regard to Products J and K?

Product J

Product K


Sell at split-off

Sell at split-off


Sell at split-off

Process beyond split-off


Process beyond split-off

Sell at split-off


Process beyond split-off

Process beyond split-off


There is not enough information to judge.

48. A company that is operating at full capacity should emphasize those products and services that have the:

A. lowest total per-unit costs.

B. highest contribution margin per unit.

C. highest contribution margin per unit of scarce resource.

D. highest operating income.

E. highest sales volume.

49. A firm that decides to emphasize those goods with the highest contribution margin per unit may have made an incorrect decision when the company:

A. is highly automated.

B. has excess capacity.

C. has capacity constraints in the form of limited resources.

D. has a high fixed-cost structure.

E. has a high level of sunk costs.

50. Wright Enterprises, which produces various goods, has limited processing hours at its manufacturing plant. The following data apply to product no. 607:

Sales price per unit: $9.60

Variable cost per unit: $6.20

Process time per unit: 4 hours

Management is now studying whether to devote the firm's limited hours to product no. 607 or to other products. What key dollar amount should management focus on when determining no. 607's "value" to the firm and deciding the best course of action to follow?

A. $0.85.

B. $2.40.

C. $3.40.

D. $6.20.

E. $9.60.

51. Smith Manufacturing has 27,000 labor hours available for producing X and Y. Consider the following information:

Product X
Product Y

Required labor time per unit (hours)



Maximum demand (units)



Contribution margin per unit



Contribution margin per labor hour



If Smith follows proper managerial accounting practices, which of the following production schedules should the company set?

Product X

Product Y


0 units

8,000 units


1,500 units

8,000 units


6,000 units

0 units


6,000 units

5,000 units


6,000 units

8,000 units

52. Bush Manufacturing has 31,000 labor hours available for producing M and N. Consider the following information:

Product M

Product N

Required labor time per unit (hours)



Maximum demand (units)



Contribution margin per unit



Contribution margin per labor hour



If Bush follows proper managerial accounting practices in terms of setting a production schedule, how much contribution margin would the company expect to generate?

A. $31,450.

B. $63,100.

C. $66,700.

D. $78,100.

E. None of the above.

Use the following to answer questions 53-54:

Johnson Company makes two products: Carpet Kleen and Floor Deodorizer. Operating information from the previous year follows.

Carpet Kleen

Floor Deodorizer

Units produced and sold



Machine hours used



Sales price per unit



Variable cost per unit



Fixed costs of $20,000 per year are presently allocated equally between both products. If the product mix were to change, total fixed costs would remain the same.

53. The contribution margin per machine hour for Floor Deodorizer is:

A. $0.25.

B. $2.00.

C. $4.00.

D. $5.00.

E. $20.00.

54. Assuming there is unlimited demand for both products and Johnson has 10,000 machine hours available, how many units of each product should be produced and sold?

Carpet Kleen

Floor Deodorizer


0 units

0 units


0 units

20,000 units


5,000 units

10,000 units


8,000 units

4,000 units


10,000 units

0 units

55. A technique that is useful in exploring what would happen if a key decision prediction or assumption proved wrong is termed:

A. sensitivity analysis.

B. uncertainty analysis.

C. project analysis.

D. linear programming.

E. the theory of constraints.

56. Which of the following characteristics would best explain the use of probabilities and expected values in a decision analysis?

A. Limited resources.

B. Uncertainty.

C. Inflation.

D. Multiple products and services.

E. Production bottlenecks.

57. Consider the following statements about relevant costing and activity-based costing:

I. The concept of relevant costs and benefits cannot be used in conjunction with an activity-based costing system.

II. The concept of relevant costs and benefits must be modified for use with an activity-based costing system.

III. Generally speaking, the decision maker can better associate relevant costs with the activities that drive them under an activity-based costing system than under a conventional product-costing system.

Which of the above statements is (are) true?

A. I only.

B. II only.

C. III only.

D. I and II.

E. II and III.

58. Linear programming would be used by decision makers when there are:

A. limited resources for labor.

B. scarce resources for machine hours.

C. scarce resources for both labor and machine hours.

D. multiple scarce resources.

E. limited resources for material.

59. A constraint function in a linear-programming problem might focus on:

A. sales dollars.

B. labor hours.

C. variable costs.

D. fixed costs.

E. qualitative factors.

60. When using a graphical solution to a linear programming problem, the optimal solution will lie in an area commonly known as the:

A. region of maximization.

B. feasible region.

C. objective region.

D. constraint region.

E. curvilinear region.

Use the following to answer questions 61-62:

Prudential Corporation manufactures two products: X and Y. The company has 4,000 hours of machine time available and can sell no more than 800 units of product X. Other pertinent data follow.

Product X

Product Y

Selling price



Variable cost



Fixed cost



Machine time per unit

2 hours

3 hours

61. Which of the following is Prudential's objective function?

A. Maximize Z = 2X + 3Y.

B. Maximize Z = 8X + 19Y.

C. Maximize Z = 5X + 14Y.

D. Maximize Z = 1.50X + 7.75Y.

E. Minimize Z = 6.50X + 11.25Y.

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Tutorials for this Question
  1. Tutorial # 00003718 Posted By: smartwriter Posted on: 11/23/2013 07:40 AM
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