Question :
71. Starling Co. considering disposing of a machine with a book : 1246963
71. Starling Co. is considering disposing of a machine with a book value of $12,500 and estimated remaining life of five years. The old machine can be sold for $1,500. A new high-speed machine can be purchased at a cost of $25,000. It will have a useful life of five years and no residual value. It is estimated that variable manufacturing costs will be reduced from $26,000 to $23,500 if the new machine is purchased. The total net differential increase or decrease in cost for the new equipment for the entire five years is:
A. decrease of $11,000
B. decrease of $15,000
C. increase of $11,000
D. increase of $15,000
72. Nighthawk Inc. is considering disposing of a machine with a book value of $22,500 and an estimated remaining life of three years. The old machine can be sold for $6,250. A new machine with a purchase price of $68,750 is being considered as a replacement. It will have a useful life of three years and no residual value. It is estimated that variable manufacturing costs will be reduced from $43,750 to $20,000 if the new machine is purchased. The net differential increase or decrease in cost for the entire three years for the new equipment is:
A. $8,750 increase
B. $31,250 decrease
C. $8,750 decrease
D. $2,925 decrease
73. Falcon Co. Produces a single product. Its normal selling price is $30 per unit. The variable costs are $19 per unit. Fixed costs are $25,000 for a normal production run of 5,000 units per month. Falcon received a request for a special order that would not interfere with normal sales. The order was for 1,500 units and a special price of $20.00 per unit. Falcon Co. has the capacity to handle the special order and, for this order, a variable selling cost of $1 per unit would be eliminated.
If the order is accepted, what would be the impact on net income?
A. decrease of $750
B. decrease of $4,500
C. increase of $3,000
D. increase of $1,500
74. Falcon Co. Produces a single product. Its normal selling price is $30 per unit. The variable costs are $19 per unit. Fixed costs are $25,000 for a normal production run of 5,000 units per month. Falcon received a request for a special order that would not interfere with normal sales. The order was for 1,500 units and a special price of $20.00 per unit. Falcon Co. has the capacity to handle the special order and, for this order, a variable selling cost of $1 per unit would be eliminated.
Should the special order be accepted?
A. Cannot determine from the data given
B. Yes
C. No
D. There would be no difference in accepting or rejecting the special order
75. Finch, Inc. has bought a new server and is having to decide what to do with the old one. The cost of the old server was originally $60,000 and has been depreciated $45,000. The company has received two offers that it must consider. One offer was made to purchase the equipment outright for $18,500 less a 5% sales commission. The other offer was to lease the equipment for $7,000 for the next five years but the company will be required to provide maintenance and insurance totaling $3,000 per year. What offer should Finch, Inc. accept?
A. $2,425 in favor of leasing
B. Reject both offers
C. $11,500 in favor of selling
D. $16,500 in favor of leasing
76. Mighty Safe Fire Alarm is currently buying 50,000 motherboard from MotherBoard’s Inc at a price of $65 per board. It was suggested at the last manager’s meeting that the company should consider making its own boards. The costs to make the part are as follows: Direct Materials $32 per unit, Direct labor $10 per unit, Variable Factory Overhead $16.00, Fixed Costs for the plant would increase by $75,000. As the financial advisor, what would you recommend?
A. Buy – $75,000 more in profits
B. Make – $275,000 increase in profits
C. Buy – $275,000 more in profits
D. Make – $350,000 increase in profits
77. Gull Corp. is considering selling its old popcorn machine and replacing it with a newer one. The old machine originally cost $5,000 and has been fully depreciated. Annual costs are $4,000. A high school is willing to buy it for $2,000. New equipment would cost $18,000 and annual operating costs would be $1,500. Both machines have an estimated useful life of 5 years.
A. Stay with the old equipment $3,500 less in net costs
B. Purchase the new equipment $3,500 cost savings
C. Purchase the new equipment – deduction in costs $14,500
D. Stay with the old equipment – cost savings of $2,000
78. Lark Art Company sells unfinished wooden decorations at a price of $15.00. The current profit margin is $5.00 per decoration. The company is considering taking individual orders and customizing them for sale. To finish the decoration the company would have to pay additional labor of $3.00, additional materials costing an average of $4.00 per unit and fixed costs would increase by $1,500. If the company estimates that it can sell 600 units for $25 each month, would they make additional profits or losses?
A. $300 profit
B. $300 loss
C. $800 profit
D. $800 loss
79. Super Security Company manufacturers home alarms. Currently it is manufacturing one of its components at a variable cost of $45 and fixed costs of $15 per unit. An outside provider of this component has offered to sell Safe Security the component for $50. Determine the best plan and calculate the savings.
A. $5 savings per unit – Manufacture
B. $5 savings per unit – Purchase
C. $10 savings per unit – Manufacture
D. $15 savings per unit – Purchase
80. Discontinuing a product or segment is a huge decision that must be carefully analyzed. Which of the following would be a valid reason not to discontinue an operation?
A. when the losses are minimal
B. when the variable costs are less than revenues
C. when the variable costs are more than revenues
D. when fixed costs are more than revenues
