Question : 63. The Fine Point Company currently produces all of the components : 1229595

63. The Fine Point Company currently produces all of the components for its one product; an electric pencil sharpener. The unit cost of manufacturing the motor for this pencil sharpener is:
  
The company is considering the possibility of buying this motor from a subcontractor and has been quoted a price of $3.60 per unit. The relevant cost of manufacturing the motor to be considered in reaching the decision is: 
A. $4.75.
B. $4.15.
C. $3.55.
D. $4.05.

Perry’s Cycle Company manufactures annually 20,000 units of TushSeat, a bicycle seat used on many of the company’s products, and also sold directly to retailers for $38 per unit. At the current level of production, the cost per unit to produce TushSeat consists of:
  
It has come to the attention of management that a seat of similar quality can be purchased from outside suppliers.

64. Assume that Perry’s fixed costs remain unchanged if the seats are purchased from an outside supplier. In order to operate more profitably by buying the seats rather than manufacturing them, Perry must negotiate a price per unit from the outside supplier that is less than: 
A. $27.
B. $25.
C. $22.
D. $16.

65. Assume that seats can be purchased from the outside supplier at $25 each, and that 60% of total fixed costs incurred in producing TushSeat will be eliminated by this strategy. Buying the seats instead of manufacturing them would cause Perry’s operating income to: 
A. Decrease by $20,000.
B. Increase by $36,000.
C. Increase by $16,000.
D. Decrease by $24,000.

66. Aircraft Products, a manufacturer of aircraft landing gear, makes 1,000 units each year of a special valve used in assembling one of its products. The unit cost of producing this valve includes variable costs of $70 and fixed costs of $60. The valves could be purchased from an outside supplier at $77 each. If the valve were purchased from the outside supplier, 40% of the total fixed costs incurred in producing this valve could be eliminated. Buying the valves from the outside supplier instead of making them would cause the company’s operating income to: 
A. Increase by $26,000.
B. Increase by $17,000.
C. Decrease by $9,000.
D. Decrease by $29,000.

67. Seidman Company manufactures and sells 30,000 units of product X per month. Each unit of product X sells for $16 and has a contribution margin of $7. If product X is discontinued, $85,000 in fixed monthly overhead costs would be eliminated and there would be no effect on the sales volume of Seidman Company’s other products. If product X is discontinued, Seidman Company’s monthly income before taxes should: 
A. Increase by $210,000.
B. Increase by $125,000.
C. Decrease by $210,000.
D. Decrease by $125,000.

Creative Star Corporation produces three lines of desks from wood: classic, royal, and standard. Cost and revenue data pertaining to each product are shown below:
  
Classic desks require five square yards of wood, Royal requires ten square yards, and Standard requires three square yards. High demand for each product line far exceeds the company’s production capacity.

68. If Creative Corporation has an unlimited supply of wood available, which products should it produce? 
A. Royal only.
B. Classic and royal.
C. Royal and standard.
D. Classic only.

69. If Creative Corporation has a limited supply of wood available, which products should it produce? 
A. Royal only.
B. Classic and royal.
C. Royal and standard.
D. Classic only.

70. If Creative Corporation has only 250,000 square yards of wood available, what is the highest total amount of fixed cost the company can incur and still break-even? 
A. $2,500,000.
B. $4,000,000.
C. $5,000,000.
D. $6,000,000.

71. Speedy Co. manufactures four products. Direct materials and direct labor are available in sufficient quantities, but machine capacity is limited to 3,000 hours. Cost and revenue data for the four products are given below:
  
Of the four products, which is the most profitable for Speedy Co.? 
A. Product A.
B. Product B.
C. Product C.
D. Product D.

BT&T Corporation manufactures telephones. Recently, the company produced a batch of 600 defective telephones at a cost of $9,000. BT&T can sell these telephones as scrap for $9 each. It can also rework the entire batch at a cost of $6,500, after which the telephones could be sold for $20 per unit.

72. Which of the following statements is false regarding the defective units? 
A. BT&T will not recover its costs if it sells the defective units as scrap.
B. BT&T will recover its costs if it reworks the defective units.
C. BT&T will not recover its costs if it reworks the defective units.
D. BT&T will recover more of its costs if it decides to rework the defective units.