Answer the following four multiple-choice questions:
1. Buck Company manufactures part no. 1700 for use in its production cycle. The costs per unit for a 5,000-unit quantity follows:
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Direct materials
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$2
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Direct labor
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12
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Variable overhead
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5
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Fixed overhead applied
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7
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$26
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Hollow Company has offered to sell Buck 5,000 units of part no. 1700 for $27 per unit.
If Buck accepts the offer, some of the facilities presently used to manufacture part no. 1700 could be used to help with the manufacture of part no. 1211. This would save $40,000 in relevant costs in the manufacture of part no. 1211, and $3 per unit of the fixed overhead applied to part no. 1700 would be totally eliminated. By what amount would net relevant costs be increased or decreased if Buck accepts Hollow's offer?
(a) $35,000 decrease
(b) $20,000 decrease
(c) $15,000 decrease
(d) $5,000 increase
2. Relay Corporation manufactures batons. Relay can manufacture 300,000 batons a year at a variable cost of $750,000 and a fixed cost of $450,000. Based on Relay's predictions, 240,000 batons will be sold at the regular price of $5 each. In addition, a special order was placed for 60,000 batons to be sold at a 40 percent discount off the regular price. By what amount would income be increased or decreased as a result of the special order?
(a) $60,000 decrease
(b) $30,000 increase
(c) $36,000 increase
(d) $180,000 increase
3. Cardinal Company needs 20,000 units of a certain part to use in its production cycle. The following information is available:
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Cost to Cardinal to make the part:
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Direct materials
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$ 4
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Direct labor
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16
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Variable overhead
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8
|
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Fixed overhead applied
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10
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$38
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Cost to buy the part from the Oriole Company
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$36
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If Cardinal buys the part from Oriole instead of making it, Cardinal could not use the released facilities in another manufacturing activjty. Sixty percent of the fixed overhead applied will continue, regardless of what decision is made.
In deciding whether to make or buy the part, the total relevant costs to make the part are
(a) $560,000
(b) $640,000
(c) $720,000
(d) $760,000
4.The Reno Company manufactures part no. 498 for use in its production cycle. The cost per unit for 20,000 units of part no. 498 is as follows:
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Direct materials
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$ 6
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Direct labor
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30
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Variable overhead
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12
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Fixed overhead applied
|
16
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$64
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The Tray Company has offered to sell 20,000 units of part no. 498 to Reno for $60 per unit. Reno will make the decision to buy the part from Tray if there is a savings of $25,000 for Reno. If Reno accepts Tray's offer, $9 per unit of the fixed overhead applied would be totally eliminated. Furthermore, Reno has determined that the released facilities could be used to save relevant costs in the manufacture of part no. 575. In order to have a savings of $25,000, the amount of relevant costs that would be saved by using the released facilitiesin the manufacture of part no. 575 would have to be
(a)$80,000
(b)$85,000
(c)$125,000
(d)$140,000