Q1. NF Toy Company is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $30 and NF Toy would sell it for $65. The cost to assemble the product is estimated at $21 per unit and the company believes the market would support a price of $85 on the assembled unit. What decision should NF Toy make?
A) Sell before assembly, the company will be better off by $1 per unit.
B) Sell before assembly, the company will be better off by $20 per unit.
C) Process further, the company will be better off by $29 per unit.
D) Process further, the company will be better off by $14 per unit.
Q2. A company has a process that results in 15,000 pounds of Product A that can be sold for $8 per pound. An alternative would be to process Product A further at a cost of $100,000 and then sell it for $14 per pound. Should management sell Product A now or should Product A be processed further and then sold? What is the effect of the action?
A) Process further, the company will be better off by $10,000.
B) Sell now, the company will be better off by $10,000.
C) Process further, the company will be better off by $90,000.
D) Sell now, the company will be better off by $100,000.
Q3. Marcus Company gathered the following data about the three products that it produces:
Present Estimated Additional Estimated Sales
Product Sales Value Processing Costs if Processed Further
A $12,000 $8,000 $21,000
B 14,000 5,000 18,000
C 11,000 3,000 16,000
Which of the products should not be processed further?
A) Product A
B) Product B
C) Product C
D) Products A and C
Q4. Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered:
Old Machine New Machine
Price $250,000 $500,000
Accumulated Depreciation 75,000 -0-
Remaining useful life 10 years -0-
Useful life -0- 10 years
Annual operating costs $200,000 $150,500
If the old machine is replaced, it can be sold for $20,000.
The net advantage (disadvantage) of replacing the old machine is
A) $15,000
B) $20,000
C) $(5,000)
D) $(50,000)
Q5. Abel Company produces three versions of baseball bats: wood, aluminum, and hard rubber. A condensed segmented income statement for a recent period follows:
Wood Aluminum Hard Rubber Total
Sales $500,000 $200,000 $65,000 $765,000
Variable expenses 325,000 140,000 58,000 523,000
Contribution margin 175,000 60,000 7,000 242,000
Fixed expenses 75,000 35,000 22,000 132,000
Net income (loss) $100,000 $ 25,000 $(15,000) $110,000
Assume all of the fixed expenses for the hard rubber line are avoidable. What will be total net income if the line is dropped?
A) $125,000
B) $103,000
C) $105,000
D) $140,000
Q7. A company can produce and sell only one of the following two products:
Machine Contribution
Hours Required Margin Per Unit
Product 1 3 $30
Product 2 2 $25
If the company has machine capacity of 2,000 hours, what is the total contribution margin of the product it should produce to maximize net income?
A) $20,000
B) $24,000
C) $25,000
D) $16,000
Q8. A company is considering purchasing factory equipment that costs $320,000 and is estimated to have no salvage value at the end of its 8-year useful life. If the equipment is purchased, annual revenues are expected to be $90,000 and annual operating expenses exclusive of depreciation expense are expected to be $38,000. The straight-line method of depreciation would be used.
If the equipment is purchased, the annual rate of return expected on this equipment is
A) 32.5%.
B) 3.8%.
C) 7.5%.
D) 16.3%.
Q9. A company is considering purchasing factory equipment that costs $320,000 and is estimated to have no salvage value at the end of its 8-year useful life. If the equipment is purchased, annual revenues are expected to be $90,000 and annual operating expenses exclusive of depreciation expense are expected to be $38,000. The straight-line method of depreciation would be used.
The cash payback period on the equipment is
A) 13.3 years.
B) 8.0 years.
C) 6.2 years.
D) 3.1 years.