98.Winton Corporation currently makes rolls for deli sandwiches it produces. It uses 30,000 rolls annually in the production of deli sandwiches. The costs to make the rolls are given below:
Materials$0.24 per roll
Labor$0.40 per roll
Variable overhead$0.16 per roll
Fixed overhead$0.20 per roll
A potential supplier has offered to sell Winton the rolls for $0.90 each. If the rolls are purchased, 30% of the fixed overhead could be avoided. If Winton accepts the offer, what will the effect on profit be?
A.$1,200 decline in profit
B.$1,200increase in profit
C.$3,000decline in profit
D.$3,000increase in profit
99.Tool Time manufactures carpenter-grade screwdrivers. The company is trying to decide whether to continue to make the case in which the screwdrivers are sold, or to outsource the case to another company. The direct material and direct labor cost to produce the cases total $2.00 per case. The overhead cost is $1.00 per case which consists of $0.40 in variable overhead that would be eliminated if the cases are bought from the outside supplier. The $0.60 of fixed overhead is based on expected production of 200,000 cases per year and consists of the salary of the case production manager of $40,000 per year, along withthe remainder consisting of rent, insurance, and depreciation on equipment that willhave no resale value. The manager willbe laid off if the cases were bought externally. The outside supplier has offered to supply the cases for $2.80 each. How much will Tool Time save or lose if the cases are bought externally?
A.Save $0.40 per case
B.Lose $0.10 per case
C.Lose $0.80 per case
D.Save $0.10 per case
100.Diamond Brands manufactures rice, wheat, and oat cereals. Sanders Company has approached Diamond Brands with a proposal to sell the company the rice cereals at a price of $22,000 for 20,000 pounds. The following costs are associated with production of 20,000 pounds of rice cereal:
Direct material $13,000
Direct labor 5,000
Manufacturing overhead 7,000
Total $25,000
The manufacturing overhead consists of $2,000 of variable costs with the balance being allocated to fixed costs. What is the amount of avoidable costs if Diamond Brandsbuys rather than makes the rice cereal?
A.$25,000
B.$22,000
C.$23,000
D.$20,000
101.Diamond Brands manufactures rice, wheat, and oat cereals. Sanders Company has approached Diamond Brands with a proposal to sell the company the rice cereals at a price of $22,000 for 20,000 pounds. The following costs are associated with production of 20,000 pounds of rice cereal:
Direct material $13,000
Direct labor 5,000
Manufacturing overhead 7,000
Total $25,000
The manufacturing overhead consists of $2,000 of variable costs with the balance being allocated to fixed costs, which are 30% unavoidable. What is the incremental cost per pound that Diamond will (incur) or save if it buys the rice cereal from Sanders?
A.$1.175 savings
B.$0.10 cost
C.$0.075savings
D.$23.50 cost
102.Diamond Brands manufactures rice, wheat, and oat cereals. Sanders Company has approached Diamond Brands with a proposal to sell the company the rice cereals at a price of $22,000 for 20,000 pounds. The following costs are associated with production of 20,000 pounds of rice cereal:
Direct material $13,000
Direct labor 5,000
Manufacturing overhead 7,000
Total $25,000
The manufacturing overhead consists of $2,000 of variable costs with the balance being allocated fixed costs. Should Diamond Brandsmake or buy the rice cereal?
A.Buy them to save $4,000.
B.Continue to make them because the incremental cost of buying is $2,000.
C.Buy them to save $2,000.
D.Continue to make them because the incremental cost of buying is $22,000.
103.Macho Sports Company sells soccer and baseball merchandise. The company is trying to decide whether or not to continue the baseball merchandise given the decline in the demand and current loss of this product line. The following information is available for the segments:
BaseballSoccer
Sales $120,000 $420,000
Variable costs 72,000 220,000
Contribution margin 48,000 200,000
Direct fixed costs 32,000 70,000
Allocated common fixed costs 20,000 70,000
Net income ($ 4,000) $ 60,000
If the baseball segment is dropped, soccer sales will be unaffected. What will be the effect on overall profits if the baseball segment is eliminated?
A.Overall profits will increase $4,000.
B.Overall profits will decrease by $48,000.
C.Overall profits will decrease by $16,000.
D.Overall profits will decrease by $120,000.
104.Macho Sports Company sells soccer and baseball merchandise. The company is trying to decide whether or not to continue the baseball merchandise given the decline in the demand and current loss of this product line. The following information is available for the segments:
BaseballSoccer
Sales $120,000 $420,000
Variable costs 72,000 220,000
Contribution margin 48,000 200,000
Direct fixed costs 32,000 70,000
Allocated common fixed costs 20,000 70,000
Net income ($ 4,000) $ 60,000
The company will allocate more space to the soccer product line if the baseball line is dropped. This will allow soccer sales to increase by 25%. What is the incremental effect of the decision to drop the baseball line?
A.Net income will increase by $2,000.
B.Net income will increase by $30,000.
C.Net income will increase by $34,000.
D.Net income will increase by $54,000.
105.Wedding Supply is trying to decide whether or not to continue distributing reception supplies. The following information is available for Wedding Supply’s business segments.
Reception SuppliesBridal DressesFloral Decorations
Sales $160,000 $110,000 $210,000
Variable costs 84,000 50,000 120,000
Contribution margin 76,000 60,000 90,000
Direct fixed costs 50,000 20,000 25,000
Allocated common fixed costs 30,000 25,000 30,000
Net income ($ 4,000) $15,000 $35,000
If reception supplies are dropped, what change will occur to profit?
A.Decrease by $26,000
B.Decrease by $76,000
C.Increase by $4,000
D.None of these answer choices are correct.
106.Wedding Supply is trying to decide whether or not to continue distributing reception supplies. The following information is available for Wedding Supply’s business segments.
Reception SuppliesBridal DressesFloral Decorations
Sales $160,000 $110,000 $210,000
Variable costs 84,000 50,000 120,000
Contribution margin 76,000 60,000 90,000
Direct fixed costs 50,000 20,000 25,000
Allocated common fixed costs 30,000 25,000 30,000
Net Income ($4,000) $15,000 $35,000
If reception supplies are dropped, floral decorations sales are expected to increase by 20%. What impact will the increase in floral decorations have on overall profitability?
A.Income will increase by $7,000.
B.Income will increase by $16,000.
C.Income will decrease by $18,000.
D.Income will decrease by $8,000.
107.Diva Footwear is contemplating if it should continue producing platform shoes. The following information is available for the company’s segments
PlatformShoesAthletic ShoesBoots
Sales $120,000 $420,000 $360,000
Variable costs 64,000 220,000 140,000
Contribution margin 56,000 200,000 220,000
Direct fixed costs 45,000 70,000 90,000
Allocated fixed costs 20,000 70,000 60,000
Net income ($9,000) $60,000 $70,000
Based on the information provided, which of the following is most likely to be the basis of allocating the fixed costs to the segments?
A.Sales
B.Direct fixed costs
C.Net income
D.Variable costs
