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[answered] Marsden manufactures a cat food product called Special Expo


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1. Marsden manufactures a cat food product called Special Export. Marsden curr

 

22,000 bags of Special Export on hand. The variable production costs per bag ar

 

total fixed costs are $22,000. The cat food can be sold as it is for $9.0 per bag o

 

processed further into Prime Cat Food and Feline Surprise at an additional $3,80

 

additional processing will yield 22,000 bags of Prime Cat Food and 5,700 bags of

 

Surprise, which can be sold for $8.0 and $6.0 per bag, respectively. The net advantage (incremental income) of processing Special Export further int

 

Feline Surprise would be: $206,400

 

$3,800

 

$12,200

 

$8,400

 

$210,200

 

2. Altertech Inc. manufactures a product that contains a circuit board. The company has always purchased this circuit board from

 

a supplier for $274.0 each. Altertech recently upgraded its own

 

manufacturing capabilities and now has enough excess capacity

 

(including trained workers) to begin manufacturing the circuit

 

board instead of buying it. The company prepared the following

 

per unit cost projections of making the circuit board, assuming

 

that overhead is allocated to the part at the normal

 

predetermined overhead rate of 115% of direct labor cost.

 

Dir

 

ect

 

mat

 

erial

 

s

 

Dir

 

ect

 

labo

 

r

 

Ov

 

erhe

 

ad

 

(fixe

 

d

 

and

 

vari $20 200

 

230 able

 

)

 

Tot

 

al $450

 

The required

 

volume of

 

output to

 

produce the

 

circuit boards

 

will not require

 

any incremental

 

fixed overhead.

 

Incremental

 

variable

 

overhead cost is

 

$30.0 per circuit

 

board. What is

 

the effect on

 

income if

 

Altertech

 

decides to make

 

the circuit

 

boards? A. Income will increase by $24.0 per unit.

 

B. Income will decrease by $24.0 per unit.

 

C. Income will increase by $176.0 per unit.

 

D. Income will decrease by $176.0 per unit.

 

E. Income will increase by $54.0 per unit.

 

3. Wave-Zone Company has 11,300 units of its sole product that it produced last ye

 

of $115 each. This year's model is superior to last year's and the 11,300 units ca

 

for their regular selling price of $172.5 each. Wave-Zone has two alternatives for

 

items: (1) they can be sold to a wholesaler for $11.5 each, or (2) they can be rew

 

total cost of $470,000 and then sold for $51.75 each. The company has enough

 

to rework these items without affecting any new production. Which choice would

 

the company's profits the most? A. Scrapping, because profit will increase by $15,175 more

 

than reworking.

 

B. Reworking, because profit will increase by $15,175 more

 

than scrapping.

 

C. Reworking because profit will increase by $129,950 more than scrapping.

 

D. Scrapping, because profit will increase by $129,950 more

 

than reworking.

 

E. Reworking, because profit will increase by $114,775 more

 

than scrapping.

 

4. Patrick Corporation inadvertently produced 10,000

 

defective personal radios. The radios cost $8 each to

 

produce. A salvage company will purchase the defective

 

units as they are for $3 each. Patrick's production manager

 

reports that the defects can be corrected for $5 per unit,

 

enabling them to be sold at their regular market price of

 

$12.50. Patrick should:

 

A. Sell the radios for $3 per unit.

 

B. Correct the defects and sell the radios at the regular price.

 

D. Sell the radios as they are because repairing them will

 

cause their total cost to exceed their selling price.

 

E. Sell 5,000 radios to the salvage company and repair the

 

remainder.

 

Throw the radios away.

 

5. Alpha Co. can produce a unit of Beta for the following costs: An outside supplier offers to provide Alpha with all the Beta units it needs at $60 per unit. If Alpha buys from the supplier, Alpha will still incur 40% of its overhead. Alpha should:

 

A. Buy Beta since the relevant cost to make it is $72.

 

B. Make Beta since the relevant cost to make it is $56.

 

C. Buy Beta since the relevant cost to make it is $48.

 

D. Make Beta since the relevant cost to make it is $48. E. Buy Beta since the relevant cost to make it is $56.

 

6. 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.

 

7. A company has already incurred a $12,000 cost in

 

partially producing its two products. Their selling prices when

 

partially and fully processed are shown in the following table

 

with the additional costs necessary to finish their processing.

 

Based on this information, should any products be processed

 

further? A. Both product A and product B should be processed further.

 

B. Neither product A nor product B should be processed

 

further.

 

C. Only product B should be processed further.

 

D. Only product A should be processed further. E. A processing further decision cannot be made from the

 

available data.

 

8.

 

Rocko Inc. has a machine with a book value of $50,000 and a

 

five-year remaining life. A new machine is available at a cost

 

of $85,000 and Rocko can also receive $38,000 for trading in

 

the old machine. The new machine will reduce variable

 

manufacturing costs by $14,000 per year over its five-year

 

life. Should the machine be replaced?

 

A. Yes, because income will increase by $14,000 per year.

 

B. Yes, because income will increase by $23,000 in total.

 

C. No, because the company will be $23,000 worse off in

 

total.

 

D. No, because the income will decrease by $14,000 per

 

year.

 

E. Rocko will be not be better or worse off by replacing the

 

machine.

 

9.

 

An opportunity cost:

 

A. Is an unavoidable cost.

 

B. Requires a current outlay of cash.

 

C. Results from past managerial decisions.

 

D. Is the lost benefit of choosing an alternative course of

 

action.

 

E. Is irrelevant in decision making.

 

10.

 

Bridgestreet, Inc. has three operating departments: Cutting,

 

Assembling, and Finishing. Cutting has 4,000 employees and

 

occupies 33,000 square feet. Assembling has 3,200 employees

 

and occupies 24,000 square feet. Finishing has 800 employees

 

and occupies 53,000 square feet. Indirect factory costs for the

 

current period were Administrative $470,000 and Maintenance

 

$587,500. Administrative costs are allocated to operating

 

departments based on the number of workers and maintenance

 

costs are allocated to operating departments based on square

 

footage occupied. Based on the preceding data, determine the administrative cost allocated to eac

 

department of Bridgestreet, Inc. A.

 

B.

 

C.

 

D.

 

E. Option

 

Option

 

Option

 

Option

 

Option E Cuttin

 

g:

 

Cuttin

 

g:

 

Cuttin

 

g:

 

Cuttin

 

g:

 

Cuttin

 

g: A

 

B

 

C

 

D $156,66

 

7

 

$4,000

 

$352,50

 

0

 

$235,00

 

0

 

$528,75

 

0 Assemblin

 

g:

 

Assemblin

 

g:

 

Assemblin

 

g:

 

Assemblin

 

g:

 

Assemblin

 

g: $156,66

 

7

 

$3,200

 

$352,50

 

0

 

$188,00

 

0

 

$423,00

 

0 Finishing

 

:

 

Finishing

 

:

 

Finishing

 

:

 

Finishing

 

:

 

Finishing

 

: $156,66

 

7

 

$800

 

$352,50

 

0

 

$47,000

 

$105,75

 


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