71 dary co produces a single product its normal selling price is 28 per unit the var 4297163
71. Dary Co. Produces a single product. Its normal selling price is $28 per unit. The variable costs are $18 per unit. Fixed costs are $20,000 for a normal production run of 5,000 units per month. Dary received a request for a special order that would not interfere with normal sales. The order was for 1,500 units and a special price of $17.50 per unit. Dary Co. has the capacity to handle the special order and, for this order, a variable selling cost of $2 per unit would be eliminated.
Should the special order be accepted?
A. Cannot determine from the data given
D. There would be no difference in accepting or rejecting the special order
72. Java, Inc has bought a new server and is having to decide what to do with the old one. The cost of the old server was originally $60,000 and has been depreciated $45,000. The company has received two offers that it must consider. One offer was made to purchase the equipment outright for $18,500 less a 5% sales commission. The other offer was to lease the equipment for $7,000 for the next five years but the company will be required to provide maintenance and insurance totaling $3,000 per year. What offer should Java, Inc. accept?
A. $2,425 in favor of leasing
B. Reject both offers
C. $11,500 in favor of selling
D. $16,500 in favor of leasing
73. Security Fire Alarm is currently buying 50,000 motherboard from MotherBoard’s Inc at a price of $65 per board. It was suggested at the last manager’s meeting that the company should consider making its own boards. The costs to make the part are as follows: Direct Materials $32 per unit, Direct labor $10 per unit, Variable Factory Overhead $16.00, Fixed Costs for the plant would increase by $75,000. As the financial advisor, what would you recommend?
A. Buy – $75,000 more in profits
B. Make – $275,000 increase in profits
C. Buy – $275,000 more in profits
D. Make – $350,000 increase in profits
74. Carnival Corp. is considering selling its old popcorn machine and replacing it with a newer one. The old machine originally cost $5,000 and has been fully depreciated. Annual costs are $4,000. A high school is willing to buy it for $2,000. New equipment would cost $18,000 and annual operating costs would be $1,500. Both machines have an estimated useful life of 5 years.
A. Stay with the old equipment $3,500 less in net costs
B. Purchase the new equipment $3,500 cost savings
C. Purchase the new equipment – deduction in costs $14,500
D. Stay with the old equipment – cost savings of $2,000
75. Sandy Art Company sells unfinished wooden decorations at a price of $15.00. The current profit margin is $5.00 per decoration. The company is considering taking individual orders and customizing them for sale. To finish the decoration the company would have to pay additional labor of $3.00, additional materials costing an average of $4.00 per unit and fixed costs would increase by $1,500. If the company estimates that it can sell 600 units for $25 each month, would they make additional profits or losses?
A. $300 profit
B. $300 loss
C. $800 profit
D. $800 loss
76. Safe Security Company manufacturers home alarms. Currently it is manufacturing one of its components at a variable cost of $45 and fixed costs of $15 per unit. An outside provider of this component has offered to sell Safe Security the component for $50. Determine the best plan and calculate the savings.
A. $5 savings per unit – Manufacture
B. $5 savings per unit – Purchase
C. $10 savings per unit – Manufacture
D. $15 savings per unit – Purchase
77. Discontinuing a product or segment is a huge decision that must be carefully analyzed. Which of the following would be a valid reason not to discontinue an operation?
A. when the losses are minimal
B. when the variable costs are less than revenues
C. when the variable costs are more than revenues
D. when fixed costs are more than revenues
78. Which of the following would be considered a sunk cost?
A. Purchase of new equipment
B. Equipment rental for the production area
C. Net book value of obsolete equipment that has no market value
D. Depreciation expense
79. All of the following should be considered in a make or buy decision except
A. cost savings
B. quality issues with the supplier
C. future growth in the plant and other production opportunities
D. the supplier will make a profit that would no longer belong to the business
80. A business may decide to accept additional business at a special price for all of the following reasons except
A. if additional sales will not conflict with regular sales.
B. if additional sales will increase differential income.
C. if there is an increase to sales only if fixed expenses are not increased.
D. if there is an increase to sales even if fixed expenses are also increased.