Essay Questions
 

81. Accounting terminology
Listed below are eight technical accounting terms introduced or emphasized in this chapter:
  
Each of the following statements may (or may not) describe one of these technical terms. In the space provided beside each statement, indicate the accounting term described, or answer "None" if the statement does not correctly describe any of the terms. ______ (a) Data pertaining to future time periods which may vary among alternative courses of action. ______ (b) The point at which manufacturing costs are split between finished goods inventory and work in progress. ______ (c) The benefit foregone by pursuing one course of action over another. ______ (d) Products which emerge from common materials and shared production processes. ______ (e) A cost incurred in the past that will not change as a result of future actions. ______ (f) Costs yet to be incurred which are expected to vary under different courses of action. ______ (g) The examination of differences between future costs and revenue under varying courses of action.

82. Incremental analysis
Information regarding current operations of the Farrell Corporation is given below:
  
A proposed addition to Farrell's factory is estimated by the sales manager to increase sales by a maximum of $750,000. The company's accountants have determined that the proposed addition will add $320,000 to fixed costs each year.
(a) Explain why the existing $310,000 of fixed costs is a sunk cost while the $320,000 of fixed costs associated with the proposed addition is an out-of-pocket cost.
(b) Calculate by how much the proposed addition will either increase or reduce operating income.

83. Scrap or rework decision
Nielson has 5,000 defective televisions on hand which cost $380,000 to manufacture. Nielson can either sell these defective televisions as scrap for $65 per unit, or spend an additional $120,000 on repairs and then sell the televisions for $135 per unit.
Should Nielson repair the defective TVs to sell them as scrap?
Show your supporting computations:

84. Incremental analysis-accepting a special order
Essential Company normally produces and sells 4,000 video monitors for personal computers each month. Variable manufacturing costs amount to $62 per unit, and fixed manufacturing costs are $170,000 per month. The regular sales price of the monitors is $140 per unit. The company is considering a special order from a foreign computer maker to buy an additional 1,000 monitors per month at a special price of $70 per unit. Filling this special order would not affect Essential Company's regular sales volume or fixed manufacturing costs.
(a) The average cost per unit at the 4,000-unit-per-month production level is $________________ per unit.
(b) The average cost per unit at the 5,000-unit-per-month production level is $________________ per unit.
(c) The amount of increase or decrease (indicate the correct term) in Essential Company's operating income that would result from accepting the special order is $_______________.

Essay Questions
 

81. Accounting terminology
Listed below are eight technical accounting terms introduced or emphasized in this chapter:
  
Each of the following statements may (or may not) describe one of these technical terms. In the space provided beside each statement, indicate the accounting term described, or answer "None" if the statement does not correctly describe any of the terms. ______ (a) Data pertaining to future time periods which may vary among alternative courses of action. ______ (b) The point at which manufacturing costs are split between finished goods inventory and work in progress. ______ (c) The benefit foregone by pursuing one course of action over another. ______ (d) Products which emerge from common materials and shared production processes. ______ (e) A cost incurred in the past that will not change as a result of future actions. ______ (f) Costs yet to be incurred which are expected to vary under different courses of action. ______ (g) The examination of differences between future costs and revenue under varying courses of action.

82. Incremental analysis
Information regarding current operations of the Farrell Corporation is given below:
  
A proposed addition to Farrell's factory is estimated by the sales manager to increase sales by a maximum of $750,000. The company's accountants have determined that the proposed addition will add $320,000 to fixed costs each year.
(a) Explain why the existing $310,000 of fixed costs is a sunk cost while the $320,000 of fixed costs associated with the proposed addition is an out-of-pocket cost.
(b) Calculate by how much the proposed addition will either increase or reduce operating income.

83. Scrap or rework decision
Nielson has 5,000 defective televisions on hand which cost $380,000 to manufacture. Nielson can either sell these defective televisions as scrap for $65 per unit, or spend an additional $120,000 on repairs and then sell the televisions for $135 per unit.
Should Nielson repair the defective TVs to sell them as scrap?
Show your supporting computations:

84. Incremental analysis-accepting a special order
Essential Company normally produces and sells 4,000 video monitors for personal computers each month. Variable manufacturing costs amount to $62 per unit, and fixed manufacturing costs are $170,000 per month. The regular sales price of the monitors is $140 per unit. The company is considering a special order from a foreign computer maker to buy an additional 1,000 monitors per month at a special price of $70 per unit. Filling this special order would not affect Essential Company's regular sales volume or fixed manufacturing costs.
(a) The average cost per unit at the 4,000-unit-per-month production level is $________________ per unit.
(b) The average cost per unit at the 5,000-unit-per-month production level is $________________ per unit.
(c) The amount of increase or decrease (indicate the correct term) in Essential Company's operating income that would result from accepting the special order is $_______________.

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