Verified Test Bank Ch7 Incremental Analysis For Short-Term

Managerial Accounting, 4e (Whitecotton)

Chapter 7 Incremental Analysis for Short-Term Decision Making

1) When managers make a decision, they base it strictly on the numerical analysis performed in step three of the decision making process.

2) A relevant cost is one that will not change depending upon which alternative is selected.

3) A sunk cost is never a relevant cost.

4) An avoidable cost is one that has already been spent.

5) An opportunity cost is the foregone benefit of choosing to do one thing instead of another.

6) If a company has idle capacity, it means it has reached the limit on its resources.

7) Opportunity costs are not relevant when a company has idle capacity.

8) Opportunity costs are important in special-order and make-or-buy decisions, but not in keep-or-drop decisions.

9) A special-order decision analysis should not be used to make long-term pricing decisions.

10) A special-order decision analysis should not be used if the firm is operating at full capacity.

11) The quality of the goods in question is irrelevant to a make-or-buy decision.

12) In deciding whether to eliminate a business segment, managers should consider which costs and benefits will change as a result of the decision.

13) The segment margin is the contribution margin of a particular segment.

14) A product should be processed further if no additional fixed costs are incurred in its processing.

15) If machine hours are a constraining factor, the product with the highest contribution margin per machine hour should be prioritized in production.

16) The first step in the managerial decision making process is to:

A) identify the decision problem.

B) determine the decision alternatives.

C) make the decision.

D) evaluate costs and benefits.

17) The final step in the decision making process is to:

A) make the decision.

B) identify the decision problem.

C) evaluate costs and benefits of alternatives.

D) review the results of the decision.

18) Which of the following is not a step in the managerial decision-making process?

A) Identify the decision problem.

B) Calculate the payback period.

C) Determine the decision alternatives.

D) Evaluate the costs and benefits of the alternatives.

19) Which of the following steps in the managerial decision-making process involves differential analysis?

A) Identify the decision problem.

B) Determine the decision alternatives.

C) Evaluate the costs and benefits of the alternatives.

D) Make the decision.

20) Which of the following is not a step in the managerial decision-making process?

A) Identify the activity cost drivers.

B) Review the results of the decision-making process.

C) Determine the alternatives.

D) Evaluate the costs and benefits of the alternatives.

21) Which of the following is not a step in the managerial decision-making process?

A) Identify the decision problem.

B) Review the results of the decision-making process.

C) Determine the decision alternatives.

D) Forecast the potential sales.

22) Which of the following is not a step in the managerial decision-making process?

A) Identify the decision problem.

B) Review the results of the decision-making process.

C) Choose the appropriate hurdle rate.

D) Evaluate the costs and benefits of the alternatives.

23) The decision-making approach that focuses on factors that will change between alternatives is sometimes called all of the following except:

A) incremental analysis.

B) actual costing.

C) differential analysis.

D) relevant costing.

24) You wish to take an Excel course. (Step 1 of the decision-making process.) You may enroll at one within your school or you may take a community class at the local library. (Step 2 of the decision-making process.) You've gathered the following information to aid in your decision-making process.

This information illustrates which step in the decision-making process? 

A) Determine the decision alternatives.

B) Evaluate the costs and benefits of the alternatives.

C) Make the decision.

D) Review the results of the decision.

25) You wish to take an Excel course. You may enroll at one within your school or you may take a community class at the local library. You've gathered the following information to aid in your decision-making process. 

Considering solely the enrollment cost of each alternative, which would you choose? 

A) Neither alternative

B) College course

C) Community course

D) Both alternatives

26) You wish to take an Excel course. You may enroll at one within your school or you may take a community class at the local library. You've gathered the following information to aid in your decision-making process.

Pretend transportation (gas, mileage, and parking) cost $200 per class session at the library. If you consider solely the cost - including transportation - of each alternative, which would you choose? 

A) Neither alternative

B) College course

C) Community course

D) Both alternatives

27) You wish to take an Excel course. You may enroll at one within your school or you may take a community class at the local library. You've gathered the following information to aid in your decision-making process.

Consider the transportation cost. At what point would you be indifferent between alternatives?

A) Transportation cost of $200 per class for the community course

B) Transportation cost of $150 per class for the community course

C) Transportation cost of $250 per class for the community course

D) Transportation cost of $300 per class for the community course

28) You wish to take an Excel course. You may enroll at one within your school or you may take a community class at the local library. You've gathered the following information to aid in your decision-making process.

If you enroll in the community class, you will be unable to work at your regular job on weekends for the eight weekend days when the class meets. If you typically earn $500 per weekend shift, which option would you choose (considering enrollment cost and opportunity cost)?

A) Neither alternative

B) College course

C) Community course

D) Both alternatives

29) You wish to take an Excel course. You may enroll at one within your school or you may take a community class at the local library. You've gathered the following information to aid in your decision-making process.

If you earn a scholarship that covers 95% of your tuition costs at the college (but cannot be applied to other learning opportunities), which option would you choose (based on net enrollment cost)?

A) Neither alternative

B) College course

C) Community course

D) Both alternatives

30) Which of the following is not another term for relevant costs?

A) differential costs

B) incremental costs

C) opportunity costs

D) avoidable costs

31) Costs that change across decision alternatives are:

A) accounting costs.

B) activity-based costs.

C) differential costs.

D) capital costs.

32) A relevant cost is:

A) the foregone benefit of choosing to do one thing instead of another.

B) a cost that differs across decision alternatives.

C) a cost that has already been incurred.

D) a cost that is the same regardless of the alternative the manager chooses.

33) Which of the following statements is false?

A) Sunk costs are never relevant.

B) Sunk costs are costs that occurred in the past.

C) To be relevant, a cost must be an opportunity cost.

D) To be relevant, a cost must occur in the future.

34) The manager of Hampton, Inc. is trying to decide whether to make or buy a component of the product it sells. Which of the following costs and benefits is not relevant to the decision?

A) Direct labor cost involved in making the component

B) The purchase price of the component if it is bought

C) Variable manufacturing overhead involved in making the component

D) The selling price of the product

35) You wish to take an Excel course. You may enroll at one within your school or you may take a community class at the local library. You've gathered the following information to aid in your decision-making process.

Which of the following is not relevant to the decision?

A) Enrollment cost

B) Distance to course

C) Perceived value of convenience

D) Apartment rent

36) The foregone benefit of choosing one alternative over another is measured by:

A) opportunity costs.

B) activity-based costs.

C) differential costs.

D) capital costs.

37) Which of the following is not a true statement about capacity?

A) Capacity is a measure of the limit placed on a specific resource.

B) Opportunity costs are relevant when capacity of a critical resource is limited.

C) Opportunity costs are relevant when capacity of a critical resource is unlimited.

D) The number of people that will fit in a restaurant is an example of capacity.

38) Which of the following is true of a firm that has reached the limit on its resources?

A) It has idle capacity.

B) Opportunity costs are now relevant.

C) It has no relevant costs.

D) It has excess capacity.

39) Which of the following types of decisions involves deciding whether to accept or reject an order that is outside the scope of normal sales?

A) Special-order

B) Make-or-buy

C) Continue or discontinue

D) Sell-or-process further

40) ________ is/are excluded from the incremental analysis because they will be incurred regardless of whether or not the company accepts the special order.

A) Direct materials

B) Direct labor

C) Variable overhead costs

D) Fixed overhead costs

41) A make-or-buy decision is the same as:

A) an outsourcing decision.

B) an opportunity cost.

C) a keep-or-drop decision.

D) a sunk cost.

42) Which of the following is an example of how a service firm might turn unused capacity into revenue using incremental analysis?

A) An instructor agrees to add an additional student to a class.

B) An accountant with no extra time agrees to do an extra client's tax return during busy season.

C) A manufacturing firm that rents assembly line space to a complementary company.

D) A train company uses a last-minute app to fill empty seats and makes long-term pricing decisions based on average revenue.

43) What are the decision alternatives in a special-order decision?

A) To make or buy the product.

B) To continue or discontinue the product.

C) To accept or reject the offer.

D) To sell-or-process further.

44) Which of the following costs is not relevant in a special-order decision?

A) Direct labor

B) Direct materials

C) Variable overhead

D) Fixed overhead

45) Cranberry has received a special order for 100 units of its product at a special price of $2,100. The product normally sells for $2,800 and has the following manufacturing costs:

Assume that Cranberry has sufficient capacity to fill the order without harming normal production and sales. If Cranberry accepts the order, what effect will the order have on the company's short-term profit? 

A) $42,000 decrease

B) $42,000 increase

C) $70,000 decrease

D) $28,000 increase

46) Potter has received a special order for 10,000 units of its product at a special price of $24. The product normally sells for $32 and has the following manufacturing costs:

Potter is currently operating at full capacity and cannot fill the order without harming normal production and sales. If Potter accepts the order, what effect will the order have on the company's short-term profit? 

A) $64,000 decrease

B) $64,000 increase

C) $80,000 decrease

D) $16,000 increase

47) Ross has received a special order for 10,000 units of its product at a special price of $30. The product normally sells for $40 and has the following manufacturing costs:

Assume that Ross has sufficient capacity to fill the order. If Ross accepts the order, what effect will the order have on the company's short-term profit?

A) $40,000 decrease

B) $180,000 increase

C) $60,000 decrease

D) $80,000 increase

48) Pinto Co. has received a special order for 2,000 units of its product at a special price of $75. The product normally sells for $100 and has the following manufacturing costs:

Assume that Pinto Co. has sufficient capacity to fill the order without harming normal production and sales. If Pinto Co. accepts the order, what effect will the order have on the company's short-term profit?

A) $30,000 decrease

B) $30,000 increase

C) $50,000 decrease

D) $20,000 increase

49) Walnut has received a special order for 2,000 units of its product at a special price of $270. The product normally sells for $360 and has the following manufacturing costs:

Walnut is currently operating at full capacity and cannot fill the order without harming normal production and sales. If Walnut accepts the order, what effect will the order have on the company's short-term profit?

A) $108,000 decrease

B) $108,000 increase

C) $180,000 decrease

D) zero

50) Almond has received a special order for 6,000 units of its product at a special price of $90. The product normally sells for $120 and has the following manufacturing costs:

Assume that Almond has sufficient capacity to fill the order. If Almond accepts the order, what effect will the order have on the company's short-term profit?

A) $72,000 increase

B) $180,000 increase

C) $252,000 decrease

D) zero

51) Peach has received a special order for 10,000 units of its product. The product normally sells for $20 and has the following manufacturing costs:

Assume that Peach has sufficient capacity to fill the order. What price should Peach charge to make a $10,000 incremental profit?

A) $20

B) $17

C) $12

D) $15

52) Violet has received a special order for 100 units of its product. The product normally sells for $2,000 and has the following manufacturing costs:

Assume that Violet has sufficient capacity to fill the order without harming normal production and sales. What minimum price should Violet charge to achieve a $25,000 incremental profit?

A) $1,300

B) $1,550

C) $1,680

D) $1,800

53) Avocado has received a special order for 2,000 units of its product at a special price. The product normally sells for $400 and has the following manufacturing costs:

Assume that Avocado has sufficient capacity to fill the order. What special order price should Avocado charge to make a $20,000 incremental profit?

A) $400

B) $360

C) $270

D) $260

54) Dot has received a special order for 2,000 units of its product at a special price. The product normally sells for $200 and has the following manufacturing costs:

Assume that Dot has sufficient capacity to fill the order without harming normal production and sales. What minimum price should Dot charge to achieve a $50,000 incremental profit?

A) $225

B) $155

C) $168

D) $180

55) Crystal has received a special order for 2,000 units of its product. The product normally sells for $200 and has the following manufacturing costs:

Crystal is currently operating at full capacity and cannot fill the order without harming normal production and sales. What minimum price should Crystal charge to earn an incremental profit of $50,000?

A) $175

B) $200

C) $225

D) $155

56) Which of the following types of decisions involves deciding whether to perform a particular activity in-house or purchase it from an outside supplier?

A) Special-order

B) Make-or-buy

C) Continue or discontinue

D) Sell-or-process further

57) Be cautious of ________ expressed on a per-unit basis when weighing make-or-buy decisions. The total value (instead of the per unit value) is relevant to the decision.

A) variable costs

B) fixed costs

C) opportunity costs

D) relevant costs

58) Cotton Corp. currently makes 10,000 subcomponents a year in one of its factories. The unit costs to produce are:

An outside supplier has offered to provide Cotton Corp with the 10,000 subcomponents at an $84.50 per unit price. Fixed overhead is not avoidable. If Cotton Corp. accepts the outside offer, what will be the effect on short-term profits?

A) $260,000 increase

B) $195,000 decrease

C) no change

D) $65,000 increase

59) Cotton Corp. currently makes 10,000 subcomponents a year in one of its factories. The unit costs to produce are:

An outside supplier has offered to provide Cotton Corp. with the 10,000 subcomponents at an $84.50 per unit price. Fixed overhead is not avoidable. If Cotton Corp. rejects the outside offer, what will be the effect on short-term profits?

A) $260,000 increase

B) $195,000 decrease

C) no change

D) $65,000 increase

60) Cotton Corp. currently makes 10,000 subcomponents a year in one of its factories. The unit costs to produce are:

An outside supplier has offered to provide Cotton Corp. with the 10,000 subcomponents at an $84.50 per unit price. Fixed overhead is not avoidable. What is the maximum price Cotton Corp. should pay the outside supplier?

A) $65.00

B) $84.50

C) $91.00

D) $58.50

61) Olive Corp. currently makes 20,000 subcomponents a year in one of its factories. The unit costs to produce are:

An outside supplier has offered to provide Olive Corp. with the 20,000 subcomponents at a $36 per unit price. Fixed overhead is not avoidable. If Olive Corp. accepts the outside offer, what will be the effect on short-term profits?

A) $160,000 decrease

B) $320,000 increase

C) $160,000 increase

D) $80,000 decrease

62) Olive Corp. currently makes 20,000 subcomponents a year in one of its factories. The unit costs to produce are:

An outside supplier has offered to provide Olive Corp. with the 20,000 subcomponents at a $36 per unit price. Fixed overhead is not avoidable. If Olive Corp. rejects the outside offer, what will be the effect on short-term profits?

A) $80,000 increase

B) no change

C) $160,000 decrease

D) $80,000 decrease

63) Olive Corp. currently makes 20,000 subcomponents a year in one of its factories. The unit costs to produce are:

An outside supplier has offered to provide Olive Corp. with the 20,000 subcomponents at a $36 per unit price. Fixed overhead is not avoidable. What is the maximum price Olive Corp. should pay the outside supplier?

A) $32

B) $36

C) $40

D) $44

64) Clifford, Inc. currently manufactures 2,000 subcomponents in one of its factories. The current unit costs to produce the subcomponents are:

Due to a labor strike, Clifford is considering purchasing the subcomponents from an outside supplier for $250 per unit rather than paying the 10% increase in direct labor costs demanded by the union. Fixed overhead is not avoidable. If Clifford purchases the subcomponent from the outside supplier, how much will profit differ from what it would be if it manufactured the subcomponents with the increase in direct labor cost?

A) $30,000 less

B) $20,000 less

C) $10,000 less

D) $20,000 more

65) Chafford, Inc. currently manufactures 2,000 subcomponents in one of its factories. The unit costs to produce the subcomponents are:

Due to a labor strike, Chafford is considering purchasing the subcomponents from an outside supplier for $250 per unit. The union is demanding a 20% increase in pay for direct labor. Fixed overhead is not avoidable. How much could Chafford increase their pay before it would be more advantageous to purchase the subcomponents from the outside supplier?

A) 5%

B) 15%

C) 50%

D) 75%

66) Moss, Inc. currently processes payroll in its accounting department, which costs the following per month:

Moss could use a payroll processing firm instead, which would cost $1,350 per month, but the firm would provide all supplies. If Moss used the outside firm, the accountants who currently process payroll would be reassigned to other accounting tasks. How much would monthly costs be affected if Moss switched to the payroll processing firm?

A) Increase $875

B) Decrease $475

C) Increase $225

D) Decrease $225

67) Manor, Inc. currently manufactures 1,000 subcomponents per month in one of its factories. The unit costs to produce the subcomponents are:

Manor is considering purchasing the subcomponents from an outside supplier, who normally charges $300 per unit. The supplier also has an "Exclusive Buyer's Club" which costs $30,000 per month to join, but whose members can purchase the subcomponents for $250 per unit. Fixed overhead is not avoidable. If Manor chose to purchase the subcomponents using the cheaper of the two buying options, what would be the effect on profit?

A) Decrease $25,000

B) Decrease $5,000

C) Increase $20,000

D) Increase $75,000

68) Manor, Inc. currently manufactures 1,000 subcomponents per month in one of its factories. The unit costs to produce the subcomponents are:

Manor is considering purchasing the subcomponents from an outside supplier, who normally charges $300 per unit. The supplier also has an "Exclusive Buyer's Club" which costs $30,000 per month to join, but whose members can purchase the subcomponents for $250 per unit. Fixed overhead is not avoidable. How many units would Manor need to order per month to make it worth it to join the "Exclusive Buyer's Club"?

A) 800

B) 1,000

C) 1,200

D) 1,500

69) Which of the following types of decisions involves deciding whether to eliminate a particular division or segment of the business?

A) Special-order

B) Make-or-buy

C) Continue-or-discontinue

D) Sell-or-process further

70) Which of the following is irrelevant to the decision to eliminate an unprofitable segment?

A) The segment margin

B) Direct fixed costs

C) Common fixed costs

D) Segment revenue

71) A ________ is one that can be attributed to a specific segment of the business.

A) common fixed cost

B) direct fixed cost

C) variable fixed cost

D) fixed variable cost

72) Clay Inc. has two divisions, Myrtle and Laurel. Following is the income statement for the previous year:

What would Clay's profit margin be if the Laurel division was dropped and all fixed costs are unavoidable?

A) $99,625 profit

B) $91,000 profit

C) $384,000 profit

D) $71,000 loss

73) Market Inc. has two divisions, Talbot and Heather. Following is the income statement for the past month:

What would Market's profit margin be if the Talbot division was dropped and all fixed costs are unavoidable?

A) $500 loss

B) $79,000 loss

C) $33,500 profit

D) $213,000 profit

74) Power Inc. has two divisions, Windsor and Ridge. Following is the income statement for the past month:

What would Power's profit margin be if the Windsor division was dropped and all fixed costs are unavoidable?

A) $0

B) $80,000 loss

C) $42,000 profit

D) $80,000 profit

75) The law firm of Regal and Porter is examining its client base to determine how profitable its regular clients are. Its analysis indicates that Hawthorne, Inc. paid $179,200 in fees last year, but cost the firm $208,600 ($168,000 in billable labor, supplies, and copying, and $40,600 in allocated common fixed costs). If Regal and Porter dropped Hawthorne, Inc. as a client, and all fixed costs are unavoidable, how would profit be affected?

A) $0

B) Increase $29,400

C) Decrease $11,200

D) Decrease $179,200

76) The accounting firm of Pie and Lowell is examining its client base to determine how profitable its regular clients are. Its analysis indicates that Chico, Inc. paid $116,000 in fees last year, but cost the firm $124,000 ($106,000 in billable labor, supplies, and copying, and $18,000 in allocated common fixed costs). If Pie and Lowell dropped Chico, Inc. as a client, and all fixed costs are unavoidable, how would profit be affected?

A) $0

B) Increase $8,000

C) Decrease $10,000

D) Decrease $116,000

77) Davenport Inc. has two divisions, Howard and Jones. Following is the income statement for the past month:

What would Davenport's profit margin be if the Jones division was dropped?

A) $80,000 loss

B) $100,000 loss

C) $50,000 profit

D) $70,000 profit

78) Franklin, Inc. has two divisions, Seward and Charles. Following is the income statement for the previous year:

Of the total fixed costs, $300,000 are common fixed costs that are allocated equally between the divisions. What is Seward's segment margin?

A) $230,000

B) $380,000

C) $405,000

D) $600,000

79) Franklin, Inc. has two divisions, Seward and Charles. Following is the income statement for the previous year:

Of the total fixed costs, $300,000 are common fixed costs that are allocated equally between the divisions. How much did the Charles division incur in direct fixed costs?

A) $20,000

B) $150,000

C) $170,000

D) $300,000

80) Franklin, Inc. has two divisions, Seward and Charles. Following is the income statement for the previous year:

Of the total fixed costs, $300,000 are common fixed costs that are allocated equally between the divisions. What would Franklin's profit margin be if Charles were dropped?

A) $60,000

B) $80,000

C) $100,000

D) $230,000

81) Hamilton, Inc. has two divisions, Parker and Blaine. Following is the income statement for the previous year:

Of the total fixed costs, $600,000 are common fixed costs that are allocated equally between the divisions. What is Parker's segment margin?

A) $150,000

B) $450,000

C) $600,000

D) $1,200,000

82) Hamilton, Inc. has two divisions, Parker and Blaine. Following is the income statement for the previous year:

Of the total fixed costs, $600,000 are common fixed costs that are allocated equally between the divisions. What would Hamilton's profit margin be if Blaine were dropped?

A) $(240,000)

B) $(150,000)

C) $110,000

D) $150,000

83) Which of the following types of decisions involves deciding whether to sell a product as is or continue to refine it so that it can be sold at a higher price?

A) Special-order

B) Make-or-buy

C) Continue-or-discontinue

D) Sell-or-process further

84) Which of the following is not relevant to a sell-or-process further decision?

A) The cost of processing the product "as is."

B) The cost of processing the product further.

C) The opportunity cost of spending resources processing the product further.

D) The incremental revenue from processing the product further.

85) Dundee Company currently produces three products from a joint process. The joint process has total costs of $250,000 per month. All three products, A, B & C, are immediately saleable as they come out of the joint process. Alternatively, any of the products could continue on with additional processing and be sold as a more complete product. The following information is available:

Which of the products should be sold after further processing?

A) Product A only

B) Products B and C

C) Products A and C

D) Product B only

86) Dardon Company currently produces three products from a joint process. The joint process has total costs of $250,000 per month. All three products, A, B & C, are immediately saleable as they come out of the joint process. Alternatively, any of the products could continue on with additional processing and be sold as a more complete product. The following information is available:

Which of the products should be sold immediately without further processing?

A) Product A only

B) Products B and C

C) Products A and C

D) Product B only

87) Henry Sweet Co. currently makes 6" candy sticks that it sells for $0.20 each. Henry can make 12" candy sticks out of two 6" candy sticks by melting them together, which costs an additional $0.03 per 12" stick. Henry can sell the 12" sticks for $0.45. Henry has enough capacity to make 10,000 6" candy sticks per month, and enough demand to sell all the candy sticks it can manufacture, whether 6" or 12". Should Henry sell 6" or 12" candy sticks, and how much additional profit will its decision bring in per month?

A) Sell 6" sticks, additional $100

B) Sell 6" sticks, additional $250

C) Sell 12" sticks, additional $100

D) Sell 12" sticks, additional $250

88) It costs Camp, Inc. $35 per unit to manufacture 1,000 units per month of a product that it can sell for $50 each. Alternatively, Camp could process the units further into a more complex product, which would cost an additional $30 per unit. Camp could sell the more complex product for $75 each. How would processing the product further affect Camp's profit?

A) Profit would increase by $5,000.

B) Profit would increase by $25,000.

C) Profit would decrease by $5,000.

D) Profit would decrease by $25,000.

89) It costs Elmwood, Inc. $78 per unit to manufacture 1,000 units per month of a product that it can sell for $90 each. Alternatively, Elmwood could sell the units at an earlier stage of processing, which would save $36 per unit. Elmwood could sell the simpler product for $60 each. How would selling the simpler product affect Elmwood's profit?

A) Profit would increase by $6,000.

B) Profit would increase by $30,000.

C) Profit would decrease by $6,000.

D) Profit would decrease by $30,000.

90) It costs Glenwood, Inc. $70 per unit to manufacture 1,000 units per month of a product that it can sell for $100 each. Alternatively, Glenwood could process the units further into a more complex product, which would cost an additional $40 per unit. Glenwood could sell the more complex product for $145 each. How would processing the product further affect Glenwood's profit?

A) Profit would increase by $5,000.

B) Profit would increase by $45,000.

C) Profit would decrease by $5,000.

D) Profit would decrease by $45,000.

91) It costs Hickory, Inc. $220 per unit to manufacture 1,000 units per month of a product that it can sell for $290 each. Alternatively, Hickory could sell the units at an earlier stage of processing, which would save $80 per unit. Hickory could sell the simpler product for $200 each. How would selling the simpler product affect Hickory's profit?

A) Profit would increase by $10,000.

B) Profit would increase by $50,000.

C) Profit would decrease by $10,000.

D) Profit would decrease by $50,000.

92) Spencer Inc. manufactures a product that costs $36 per unit plus $32,000 in fixed costs each month. Spencer currently sells 1,000 of these units per month for $80 each. If Spencer leased a machine for $8,000 a month, it could add features to the product that would allow it to sell for $120 each. It would cost an additional $12 per unit to add these features. How much would Spencer's profit be affected if it leased the machine and added features to its product?

A) Increase $32,000

B) Decrease $32,000

C) Increase $20,000

D) Decrease $20,000

93) Spencer Inc. manufactures a product that costs $36 per unit plus $32,000 in fixed costs each month. Spencer currently sells 1,000 of these units per month for $80 each. If Spencer leased a machine for $8,000 a month, it could add features to the product that would allow it to sell for $120 each. It would cost an additional $12 per unit to add these features. How much would Spencer have to charge for the product with additional features to make it worthwhile to lease the machine?

A) $48

B) $76

C) $88

D) $100

94) Maple Inc. manufactures a product that costs $45 per unit plus $50,000 in fixed costs each month. Maple currently sells 5,000 of these units per month for $60 each. If Maple leased a machine for $30,000 a month, it could add features to the product that would allow it to sell for $75 each. It would cost an additional $10 per unit to add these features. How much would Maple's profit be affected if it leased the machine and added features to its product?

A) Increase $5,000

B) Decrease $5,000

C) Increase $295,000

D) Decrease $295,000

95) Maple Inc. manufactures a product that costs $45 per unit plus $50,000 in fixed costs each month. Maple currently sells 5,000 of these units per month for $60 each. If Maple leased a machine for $30,000 a month, it could add features to the product that would allow it to increase the selling price. It would cost an additional $10 per unit to add these features. How much would Maple have to charge for the product with additional features to make it worthwhile to lease the machine?

A) $55

B) $60

C) $71

D) $76

96) When a firm has limited direct labor hours, it should prioritize the product with:

A) the highest selling price per unit.

B) the highest contribution margin per unit.

C) the highest contribution margin per direct labor hour.

D) the lowest direct labor hours per unit.

97) What is the term for the most constrained resource?

A) The contribution margin

B) The constrainment

C) The opportunity cost

D) The bottleneck

98) Underwood, Inc. manufactures two products. It currently has 2,000 hours of direct labor and 1,000 hours of machine time available per month. The table below lists the contribution margin, labor and machine time requirements, and demand for each product.

What is the contribution margin per machine hour for Product A?

A) $12.00

B) $15.00

C) $20.00

D) $24.00

99) Underwood, Inc. manufactures two products. It currently has 2,000 hours of direct labor and 1,000 hours of machine time available per month. The table below lists the contribution margin, labor and machine time requirements, and demand for each product.

What is the contribution margin per machine hour for Product B?

A) $6.00

B) $12.00

C) $15.00

D) $24.00

100) Castle Corp. produces three products, and is currently facing a labor shortage. The selling price, costs, and labor requirements of the three products are as follows:

Castle has unlimited demand for all its products. Which product/s should Castle Corp produce to maximize profit during the labor shortage?

A) Product A only

B) Product B only

C) Products A and B

D) Products A, B, and C

101) Pine Corp. produces three products, and currently has a shortage of machine hours since one of its two machines is down. The selling price, costs, and machine time requirements of the three products are as follows:

Pine has unlimited demand for all its products. Which product/s should Pine Corp. produce to maximize profit while the machine is down?

A) Product B only

B) Product C only

C) Products B and C

D) Products A, B, and C

102) Underwood, Inc. manufactures two products. It currently has 2,000 hours of direct labor and 1,000 hours of machine time available per month. The table below lists the contribution margin, labor and machine time requirements, and demand for each product.

How much of each product should Underwood manufacture per month?

A) 1,000 units of A and 2,000 units of B

B) 1,000 units of A and 0 units of B

C) 0 units of A and 2,000 units of B

D) 500 units of A and 1,000 units of B

103) Spring, Inc. manufactures two products. It currently has 1,000 hours of direct labor and 2,000 hours of machine time available per month. The table below lists the contribution margin, labor and machine time requirements, and demand for each product:

How much of each product should Spring manufacture per month?

A) 1,000 units of A and 2,000 units of B

B) 1,000 units of A and 0 units of B

C) 0 units of A and 2,000 units of B

D) 1,000 units of A and 250 units of B

104) Grover Corp. manufactures three products, and is currently facing a labor shortage. The selling price, costs, and labor requirements of the three products are as follows:

In what order should Grover Corp. prioritize production of its products to maximize profit during the labor shortage?

A) A, B, C

B) A, C, B

C) B, A, C

D) B, C, A

105) Pepper Corp. produces three products, and currently has a shortage of machine hours since one of its two machines is down. The selling price, costs, and machine time requirements of the three products are as follows:

In what order should Pepper Corp. prioritize production of its products to maximize profit while the machine is down?

A) A, B, C

B) C, A, B

C) B, C, A

D) C, B, A

106) Castor Corp. produces three products, and is currently facing a labor shortage - only 3,000 hours are available this month. The selling price, costs, labor requirements, and demand of the three products are as follows:

How many of each product should be sold during the labor shortage to maximize profit?

A) 2,000 of Product A, 0 of Product B, and 0 of Product C.

B) 1,000 of Product A, 500 of Product B, and 0 of Product C.

C) 0 of Product A, 1,000 of Product B, and 0 of Product C.

D) 1,000 of Product A, 2,000 of Product B, and 500 of Product C.

107) Pinter Corp. produces three products, and is currently short on machine hours since one of its two machines is down - only 360 hours are available this month. The selling price, costs, labor requirements, and demand of the three products are as follows:

How many of each product should be sold while the machine is down to maximize profit?

A) 200 of Product A, 0 of Product B, and 210 of Product C.

B) 0 of Product A, 1,440 of Product B, and 0 of Product C.

C) 66 of Product A, 400 of Product B, and 210 of Product C.

D) 300 of Product A, 400 of Product B, and 210 of Product C.

108) Underwood, Inc. manufactures two products. It currently has 2,000 hours of direct labor and 1,000 hours of machine time available per month. The table below lists the contribution margin, labor and machine time requirements, and demand for each product.

What is the total contribution margin if Underwood, Inc. prioritizes production according to its limited resources?

A) $39,000

B) $15,000

C) $24,000

D) $19,500

109) Spring, Inc. manufactures two products. It currently has 1,000 hours of direct labor and 2,000 hours of machine time available per month. The table below lists the contribution margin, labor and machine time requirements, and demand for each product.

What is the total contribution margin if Spring, Inc. prioritizes production according to its limited resources?

A) $39,000

B) $15,000

C) $24,000

D) $18,000

110) Castor Corp. produces three products, and is currently facing a labor shortage - only 3,000 hours are available this month. The selling price, costs, labor requirements, and demand of the three products are as follows:

What is the total contribution margin if Castor Corp. prioritizes production according to its limited resources?

A) $30,000

B) $25,000

C) $20,000

D) $60,000

111) Managerial decision makers must often consider non-economic factors as well. For example, when considering whether to outsource to another country, in addition to considering the cost of that decision, managerial accountants with an emphasis on sustainability should consider the human capital impact as well. This represents sustainability within a:

A) make-or-buy decision.

B) keep-or-drop decision.

C) sell-or-process further decision.

D) special-order decision.

112) Managerial decision makers must often consider non-economic factors as well. For example, when considering whether to eliminate a product line, managerial accountants with an emphasis on sustainability should consider the employee job loss implications as well. This represents sustainability within a:

A) make-or-buy decision.

B) keep-or-drop decision.

C) sell-or-process further decision.

D) special-order decision.

113) Paul has a problem: He is thirsty. Put his decision-making steps in the right order based on the steps in the decision-making process.

Decision Steps:

A. Paul is thirsty.

B. Paul decides to order the 12-ounce iced green tea.

C. The price of the latte is $4.50; the price of the green tea is $3.50, and the price of the soft drink is $2.00. Paul absolutely loves lattes, especially from this café. The foam is deliciously fluffy, and the caffeine will help energize him for the afternoon. The green tea is delicious, and also caffeinated. Paul prefers the natural taste of green tea to lattes. The soft drink has no health benefits, and Paul isn't comfortable with the ingredients in this particular brand. Nevertheless, it is a very affordable (caffeinated) option.

D. As he takes the first sip, Paul knows he makes the right choice for an afternoon beverage on a hot day. But the latte at the next table looks delicious.

E. At the café, Paul can choose a 16-ounce latte, a 12-ounce iced green tea, or a 20-ounce diet soft drink.

114) Capitol has received a special order for 2,000 units of its product at a special price of $195. The product normally sells for $260 and has the following manufacturing costs:

Assume that Capitol has sufficient capacity to fill the order without harming normal production and sales and all fixed overhead is unavoidable.

a. If Capital accepts the order, what effect will the order have on the company's short-term profit?

b. What minimum price should Capital charge to achieve a $65,000 incremental profit?

c. Now assume Capital is currently operating at full capacity and cannot fill the order without harming normal production and sales. If Capitol accepts the order, what effect will the order have on the company's short-term profit?

115) Mason has received a special order for 1,000 units of its product at a special price of $250. The product currently sells 18,000 units for $300 and has the following manufacturing costs:

Assume that Mason has sufficient capacity to fill the order without harming normal production and sales and all fixed overhead is unavoidable.

a. If Mason accepts the order, what effect will the order have on the company's short-term profit?

For the next two questions, now assume that Mason has sufficient capacity to fill 500 units of the order without harming normal sales.

b. If Mason accepts the order and fills it completely, what effect will the order have on the company's short-term profit?

c. If Mason accepts the special order, what average price should Mason charge to make a $20,000 incremental profit?

116) Marcy has received a special order for 2,000 units of its product at a special price of $60. The product normally sells for $80 and has the following manufacturing costs:

Assume that Marcy has sufficient capacity to fill the order without harming normal production and sales and all fixed overhead is unavoidable.

a. If Marcy accepts the order, what effect will the order have on the company's short-term profit?

b. What minimum price should Marcy charge to achieve a $20,000 incremental profit?

c. Now assume Marcy is currently operating at full capacity and cannot fill the order without harming normal production and sales. If Marcy accepts the order, what effect will the order have on the company's short-term profit?

117) Poppy has received a special order for 1,000 units of its product at a special price of $125. The product currently sells 18,000 units for $150 and has the following manufacturing costs:  

Assume that Poppy has sufficient capacity to fill the order without harming normal production and sales and all fixed overhead is unavoidable.

a. If Poppy accepts the order, what effect will the order have on the company's short-term profit?

For the next two questions, now assume that Poppy has sufficient capacity to fill 500 units of the order without harming normal sales.

b. If Poppy accepts the order and fills it completely, what effect will the order have on the company's short-term profit?

c. If Poppy accepts the special order, what average price should Poppy charge to make a $10,000 incremental profit?

118) Bancroft currently manufactures a subcomponent that is used in its main product. A supplier has offered to supply all the subcomponents needed at a price of $240. Bancroft currently produces 20,000 subcomponents at the following manufacturing costs:

a. If Bancroft has no alternative uses for the manufacturing capacity, what would be the profit impact of buying the subcomponents from the supplier?

b. If Bancroft has no alternative uses for the manufacturing capacity, what would be the maximum price per unit they would be willing to pay the supplier?

c. Now assume Bancroft would avoid $640,000 in equipment leases and salaries if the subcomponent were purchased from the supplier. Now what would be the profit impact of buying from the supplier?

119) Deer currently manufactures a subcomponent that is used in its main product. A supplier has offered to supply all the subcomponents needed at a price of $12. Deer currently produces 80,000 subcomponents at the following manufacturing costs: 

a. If Deer has no alternative uses for the manufacturing capacity, what would be the profit impact of buying the subcomponents from the supplier?

b. If Deer has no alternative uses for the manufacturing capacity, what would be the maximum price per unit they would be willing to pay the supplier?

c. Now assume Deer would avoid $120,000 in equipment leases and salaries if the subcomponent were purchased from the supplier. Now what would be the profit impact of buying from the supplier?

120) Edward currently manufactures a subcomponent that is used in its main product. A supplier has offered to supply all the subcomponents needed at a price of $22. Edward currently produces 100,000 subcomponents at the following manufacturing costs: 

a. If Edward has no alternative uses for the manufacturing capacity, what would be the profit impact of buying the subcomponents from the supplier?

b. If Edward has no alternative uses for the manufacturing capacity, what would be the maximum price per unit they would be willing to pay the supplier?

c. Now assume Edward would avoid $300,000 in equipment leases and salaries if the subcomponent were purchased from the supplier. Now what would be the profit impact of buying from the supplier?

121) Archer currently manufactures a subcomponent that is used in its main product. A supplier has offered to supply all the subcomponents needed at a price of $42. Archer currently produces 100,000 subcomponents at the following manufacturing costs:

a. If Archer has no alternative uses for the manufacturing capacity, what would be the profit impact of buying the subcomponents from the supplier?

b. If Archer has no alternative uses for the manufacturing capacity, what would be the maximum price per unit they would be willing to pay the supplier?

c. Now assume Archer would avoid $150,000 in equipment leases and salaries if the subcomponent were purchased from the supplier. Now what would be the profit impact of buying from the supplier?

122) Rock Inc. has three divisions, Granite, Lime and Nina. All fixed costs are unavoidable. Following is the income statement for the previous year:

a. What would Rock's profit margin be if the Lime division were dropped?

b. What would Rock's profit margin be if the Nina division were dropped?

123) Shirley Inc. has three divisions, King, West and Gold. All fixed costs are unavoidable. Following is the income statement for the previous year:

a. What would Shirley's profit margin be if the West division were dropped?

b. What would Shirley's profit margin be if the Gold division were dropped?

124) Valley Inc. has three divisions, Almond, Grover and Oak. Following is the income statement for the previous year:

Of the fixed costs, $300,000 is for corporate costs and is allocated equally to the three divisions.

a. How much does Grover Division have in direct fixed costs?

b. What is Grover Division's segment margin?

c. What would Valley's profit margin be if Grover Division were dropped?

125) Shirley Inc. has three divisions, King, West and Gold. Following is the income statement for the previous year:   

Of the fixed costs, $300,000 is for corporate costs and is allocated equally to the three divisions.

a. How much does Gold Division have in direct fixed costs?

b. What is Gold Division's segment margin?

c. What would Shirley's profit margin be if Gold Division were dropped?

126) Center Company currently produces three products from a joint process. The joint process has total costs of $500,000 per month. All three products, A, B & C, are immediately saleable as they come out of the joint process. Alternatively, any of the products could continue on with additional processing and be sold as a more complete product. The following information is available:

a. Should Product A be sold immediately or sold after processing further? How much will the decision affect profit?

b. Should Product B be sold immediately or sold after processing further? How much will the decision affect profit?

c. Should Product C be sold immediately or sold after processing further? How much will the decision affect profit?

127) Legacy Company currently produces three products from a joint process. The joint process has total costs of $1,200,000 per month. All three products, A, B & C, are immediately saleable as they come out of the joint process. Alternatively, any of the products could continue on with additional processing and be sold as a more complete product. The following information is available:

a. Should Product A be sold immediately or sold after processing further? How much will the decision affect profit?

b. Should Product B be sold immediately or sold after processing further? How much will the decision affect profit?

c. Should Product C be sold immediately or sold after processing further? How much will the decision affect profit?

128) Elmwood, Inc. currently sells 12,000 units of its product per year for $100 each. Variable costs total $75 per unit. Elmwood's manager believes that if a new machine is leased for $147,000 per year, modifications can be made to the product that will increase its retail value. These modifications will increase variable costs by $20 per unit, but Elmwood is hoping to sell the modified units for $130 each.

a. Should Elmwood modify the units or sell them as is? How much will the decision affect profit?

b. What is the least Elmwood could charge for the modified units to make it worthwhile to modify them?

c. The leasing company is willing to negotiate the price of the machine lease. What is the most Elmwood would be willing to pay to lease the machine if they plan to charge $130 for the modified units?

129) Pinehurst, Inc. currently sells 20,000 units of its product per year for $200 each. Variable costs total $75 per unit. Pinehurst' manager believes that if a new machine is leased for $250,000 per year, modifications can be made to the product that will increase its retail value. These modifications will increase variable costs by $50 per unit, but Pinehurst is hoping to sell the modified units for $275 each.

a. Should Pinehurst modify the units or sell them as is? How much will the decision affect profit?

b. What is the least Pinehurst could charge for the modified units to make it worthwhile to modify them?

c. The leasing company is willing to negotiate the price of the machine lease. What is the most Pinehurst would be willing to pay to lease the machine if they plan to charge $275 for the modified units?

130) Hanson Corp. produces three products, and is currently facing a labor shortage – only 3,000 hours are available this month. The selling price, costs, and labor requirements of the three products are as follows:

a. What is the contribution margin per unit for each product?

b. What is the contribution margin per direct labor hour for each product?

c. Assume Hanson has unlimited demand for each product. Which product should Hanson focus on producing?

131) Pasadena Corp. produces three products, and currently has a shortage of machine hours since one of its two machines is down - only 360 hours are available this month. The selling price, costs, and labor requirements of the three products are as follows:

a. What is the contribution margin per unit for each product?

b. What is the contribution margin per machine hour for each product?

c. Assume Pasadena has unlimited demand for each product. Which product should Pasadena focus on producing?

132) Hanson Corp. produces three products, and is currently facing a labor shortage - only 3,000 hours are available this month. The selling price, costs, labor requirements, and demand of the three products are as follows:

a. In what order should Hanson prioritize production of the products?

b. How many of each product should be sold during the labor shortage to maximize profit?

c. What is the total contribution margin if Hanson prioritizes production according to its limited resources?

133) Pasadena Corp. produces three products, and currently has a shortage of machine hours since one of its two machines is down – only 360 hours are available this month. The selling price, costs, labor requirements, and demand of the three products are as follows:

a. In what order should Pasadena prioritize production of the products?

b. How many of each product should be sold while the machine is down to maximize profit?

c. What is the total contribution margin if Pasadena prioritizes production according to its limited resources?

134) Reno Corp. produces three products, and is currently facing a labor shortage - only 3,000 hours are available this month. The selling price, costs, and labor requirements of the three products are as follows:

a. What is the contribution margin per unit for each product?

b. What is the contribution margin per direct labor hour for each product?

c. Assume Reno has unlimited demand for each product. Which product should Reno focus on producing?

d. What is the total contribution margin if Reno focuses as determined in part (c)?

135) Reynolds Corp. produces three products, and currently has a shortage of machine hours since one of its two machines is down - only 460 hours are available this month. The selling price, costs, and labor requirements of the three products are as follows:

a. What is the contribution margin per unit for each product?

b. What is the contribution margin per machine hour for each product?

c. Assume Reynolds has unlimited demand for each product. Which product should Reynolds focus on producing?

d. What is the total contribution margin if Reynolds focuses as determined in part (c)?

136) Restore Corp. produces three products, and is currently facing a labor shortage - only 3,000 hours are available this month. The selling price, costs, labor requirements, and demand of the three products are as follows:

a. In what order should Restore prioritize production of the products?

b. How many of each product should be sold during the labor shortage to maximize profit?

c. What is the total contribution margin if Restore prioritizes production according to its limited resources?

137) Story Corp. produces three products, and currently has a shortage of machine hours since one of its two machines is down - only 460 hours are available this month. The selling price, costs, labor requirements, and demand of the three products are as follows:

a. In what order should Story prioritize production of the products?

b. How many of each product should be sold while the machine is down to maximize profit?

c. What is the total contribution margin if Story prioritizes production according to its limited resources?

138) Consider the most constrained resource you have: Your time. The bottleneck is 24 hours (the amount you – and everyone else – has in any given day). After considering time spent sleeping, eating, and working, you are left with eight hours per week of extra time, which you may spend studying for the CPA exam or playing the piano.

As a CPA, your potential earnings per hour are $125.00, while as a pianist your potential earnings per hour are $55.00. The variable cost per direct labor hour of your time is $25.00. 

a. Based on the data in the table above, how many hours should you spend studying each week? (Pretend the available hours are consecutive hours.)

b. You find you retain less information the longer you study, such that the variable cost of each hour of studying actually doubles with each additional hour spent studying. Given this new information, how many hours should you spend studying each week? (Pretend the available hours are consecutive hours.)