Question :
51. ServicePro provides two kinds of services. During the most recent : 1208244
51. ServicePro provides two kinds of services. During the most recent accounting period, the two service lines produced the following operating results:
If the company stops providing Service 2:
A. The company’s income will increase by $1,500 per year.
B. The company’s income will decrease by $1,500 per year.
C. The company’s income will increase by $3,500 per year.
D. The company’s income will decrease by $3,500 per year.
52. The Mannix Company manufactures and sells two lines of china. During the most recent accounting period, the Faux line and the Traditional line sold 15,000 and 2,000 units, respectively. The company’s most recent financial statements are shown below:
Based on this information, the company should:
A. Eliminate the Traditional line because it is operating at a loss.
B. Keep the Traditional line because it contributes $26,000 to total profitability.
C. Keep the Traditional line because it contributes $55,000 to total profitability.
D. Keep the Traditional line because it contributes $50,000 to total profitability.
53. Hickory Home Company manufactures and sells two lines of furniture, case goods and upholstery. During the most recent accounting period, the Case Goods and Upholstery Divisions sold 15,000 and 2,000 units, respectively. The company’s most recent financial statements are shown below:
If unit sales for both divisions increased 10%, the company would report which of the following?
A. A $26,000 increase in net income for the Upholstery Division
B. A 10% increase in total net income of the company
C. A net income for the Upholstery Division of $4,500
D. A decline in profit for the Upholstery Division
54. Trail Power has been using the same machines to make its name brand clothing for the last five years. A cost efficiency consultant has suggested that production costs may be reduced by purchasing more technologically advanced machinery. The old machines cost the company $200,000. The old machines presently have a book value of $120,000 and a market value of $12,000. They are expected to have a five-year remaining life and zero salvage value. The new machines would cost the company $100,000 and have operating expenses of $18,000 a year. The new machines are expected to have a five-year useful life and no salvage value. The operating expenses associated with the old machines are $30,000 a year. The new machines are expected to increase quality, justifying a price increase, and thereby increasing sales revenue by $10,000 a year. Select the true statement.
A. The company will be $28,000 better off over the 5-year period if it keeps the old equipment.
B. The company will be $40,000 better off over the 5-year period if it keeps the old equipment.
C. The company will be $22,000 better off over the 5-year period if it replaces the old equipment.
D. The company will be $12,000 better off over the 5-year period if it replaces the old equipment.
55. In the short run, asset replacement decisions often result in lower reported profits in the period of replacement. Why might this be true?
A. The new asset must be paid for in the period of replacement.
B. The cost savings or increase in revenues generated by the new asset may not start immediately.
C. Often, a loss on disposal of the existing asset must be reported in the period of replacement.
D. The cost savings or increase in revenues generated by the new asset may not start immediately and/or often, a loss on disposal of the existing asset must be reported in the period of replacement.
56. A manager refuses to replace an existing asset even though an extensive analysis indicates that replacement is desirable. One possible explanation for the manager’s action is that:
A. A financial loss may be reported in the current period if the asset is replaced.
B. The manager is concerned that his or her superior may think that the original asset purchase was a mistake on the part of the manager.
C. The manager expects to be promoted or transferred in the near future and is concerned primarily about short-term performance.
D. All of the other answers are correct.
57. Which of the following is a way to relax a constraint or bottleneck?
A. Have employees work overtime.
B. Install faster machinery.
C. Train workers to improve productivity.
D. All of the other answers are correct.
58. The management practice that increases profitability through the management of bottlenecks is known as:
A. The theory of restraints.
B. The theory of constraints.
C. The materiality principle.
D. Benchmarking.
59. The best objective when faced with limited resources is to maximize:
A. The contribution margin per unit of the constraining resource.
B. The gross profit per unit of the constraining resource.
C. Production of the product with the highest selling price.
D. Production of the product with the highest customer demand.
60. Fernando Company reported the following information for its two products:
Due to labor constraints, demand for the products is greater than supply. Product X requires 2 hours of labor to produce and product Y requires 5 hours of labor to produce. Which of the following statements is true?
A. Product X should be produced and sold because it has a lower cost than Product Y.
B. Product Y should be produced and sold because it provides a higher contribution margin per unit than Product X.
C. Product X should be produced and sold because it provided a higher contribution margin per labor hour than Product Y.
D. Product Y should be produced and sold because it provides more revenue than Product X.
