Question : 50.Frederick Co. thinking about having one of its products manufactured : 1258729

 

50.Frederick Co. is thinking about having one of its products manufactured by a subcontractor. Currently, the cost of manufacturing 5,000 units follows: 

Direct material$62,000

Direct labor47,000

Variable factory overhead38,000

Factory overhead52,000

If Frederick can buy 5,000 units from a subcontractor for $130,000, it should:    

A. Make the product because current factory overhead is less than $130,000.

B. Make the product because the cost of direct material plus direct labor of manufacturing is less than $130,000.

C. Make the product because factory overhead is a sunk cost.

D. Buy the product because total fixed and variable manufacturing costs are greater than $130,000.

E. Buy the product because the total incremental costs of manufacturing are greater than $130,000.

51.A company has the choice of either selling 1,000 defective units as scrap or rebuilding them. The company could sell the defective units as they are for $4.00 per unit. Alternatively, it could rebuild them with incremental costs of $1.00 per unit for materials, $2.00 per unit for labor, and $1.50 per unit for overhead, and then sell the rebuilt units for $8.00 each. What should the company do?    

A. Sell the units as scrap.

B. Rebuild the units.

C. It does not matter because both alternatives have the same result.

D. Neither sell nor rebuild because both alternatives produce a loss. Instead, the company should store the units permanently.

E. Throw the units away.

52.A company has the choice of either selling 600 defective units as scrap or rebuilding them. The company could sell the defective units as they are for $2.00 per unit. Alternatively, it could rebuild them with incremental costs of $0.60 per unit for materials, $1.00 per unit for labor, and $0.80 per unit for overhead, and then sell the rebuilt units for $5.00 each. What should the company do?    

A. Sell the units as scrap.

B. Rebuild the units.

C. It does not matter because both alternatives have the same result.

D. Since both alternatives produce a loss, store the units in hopes of a better price later.

E. Throw the units away.

53.Ahngram Corp. has 1,000 defective units of a product that cost $3 per unit in direct costs and $6.50 per unit in indirect cost when produced last year. The units can be sold as scrap for $4 per unit or reworked at an additional cost of $2.50 and sold at full price of $12. The incremental net income (loss) from the choice of reworking the units would be:    

A. $5,500.

B. $0.

C. ($2,500).

D. $10,500.

E. $2,500.

54.Benjamin Company had the following results of operations for the past year: 

Sales (16,000 units at $10) $160,000

Direct materials and direct labor$96,000

Overhead (20% variable)16,000

Selling and administrative expenses (all fixed)32,000(144,000)

Operating income   $16,000

A foreign company (whose sales will not affect Benjamin’s market) offers to buy 4,000 units at $7.50 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $600 and selling and administrative costs by $300. If Benjamin accepts the offer, its profits will:  A. Increase by $30,000.

B. Increase by $6,000.

C. Decrease by $6,000.

D. Increase by $5,200.

E. Increase by $4,300.

55.Lattimer Company had the following results of operations for the past year: 

Sales (15,000 units at $12) $180,000

Variable manufacturing costs$97,500

Fixed manufacturing costs21,000

Selling and administrative expenses (all fixed) 36,000(154,500)

Operating income  $25,500

A foreign company whose sales will not affect Lattimer’s market offers to buy 5,000 units at $7.50 per unit. In addition to existing costs, selling these units would add a $0.25 selling cost for export fees. If Lattimer accepts this additional business, the special order will yield a:    

A. $2,000 loss.

 

B. $8,250 loss.

C. $3,750 profit.

D. $3,250 loss.

E. $5,000 profit.

56.Markson Company had the following results of operations for the past year: 

Sales (8,000 units at $20) $160,000

Variable manufacturing costs$86,000

Fixed manufacturing costs15,000

Variable selling and administrative expenses12,000

Fixed selling and administrative expenses  20,000(133,000)

Operating income    $27,000

A foreign company whose sales will not affect Markson’s market offers to buy 2,000 units at $14 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $1,600 for the purchase of special tools. If Markson accepts this additional business, its profits will:  A. Increase by $3,500.

B. Decrease by $5,650.

C. Decrease by $1,600.

D. Increase by $1,900.

E. Decrease by $5,100.

57.Wheeler Company can produce a product that incurs the following costs per unit: direct materials, $10; direct labor, $24, and overhead, $16. An outside supplier has offered to sell the product to Axle for $45. If Wheeler buys from the supplier, it will still incur 45% of its overhead cost. Compute the net incremental cost or savings of buying.    

A. $4.00 savings per unit.

B. $4.00 cost per unit.

C. $2.20 cost per unit.

D. $3.80 cost per unit.

E. $2.20 savings per unit.

58.Paxton Company can produce a component of its product that incurs the following costs per unit: direct materials, $10; direct labor, $14, variable overhead $3 and fixed overhead, $8. An outside supplier has offered to sell the product to Axle for $32. Compute the net incremental cost or savings of buying the component.    

A. $5.00 savings per unit.

B. $3.00 cost per unit.

C. $0 cost or savings per unit.

D. $5.00 cost per unit.

E. $3.00 savings per unit.

59.Walters manufactures a specialty food product that can currently be sold for $22 per unit and has 20,000 units on hand. Alternatively, it can be further processed at a cost of $12,000 and converted into 12,000 units of Deluxe and 6,000 units of Super. The selling price of Deluxe and Super are $30 and $20, respectively. The incremental net income of processing further would be:    

A. $40,000.

B. $28,000.

C. $18,000.

D. $44,000.

E. $12,000.