Question

73. Given the following data for Handle Division:

Selling price to outside customers	$	195
Variable cost per unit		110
Fixed cost per unit (based on capacity)		50
Capacity (in units)		62,000

Cabinet Division would like to purchase 11,200 units from the Handle Division at a price of $170 per unit. Handle Division has no excess capacity to handle the Cabinet Division's requirements. The Cabinet Division currently purchases from an outside supplier at a price of $185. If the Handle Division accepts a $170 price internally, the company, as a whole, will be better or worse off by:

$(112,000)

$280,000

$840,000

$168,000

74. Reyes Corporation applies overhead using a normal costing approach based upon machine-hours. Budgeted factory overhead was $271,150, budgeted machine-hours were 18,700. Actual factory overhead was $239,830, actual machine-hours were 17,350. How much overhead would be applied to production?

$251,575.

$271,150.

$258,491.

$239,830.

75. The following information was presented by User-Friendly Industries Company for an asset purchased at the beginning of the previous year.

Original cost of the asset	$	22,000
Useful life of the asset		10	years
Annual operating profit, including depreciation	$	4,800
Salvage value	$	-0-

What is the return on investment (ROI) assuming User-Friendly (a) uses the straight-line method for depreciation and (b) beginning-of-year net book values to compute ROI?

27.9%.

21.8%.

24.2%

11.1%.

Answer 1

73.

Difference between the selling price to outside customers and to Cabinet Division = $195 - $170 = $25

Savings per unit if Cabinet Division purchases the units from handle Division = $185 - $170 = $15

Therefore,

Net loss per unit if Cabinet Division purchases the units from handle Division = $25 - $15 = $10

And,

Number of units to be purchased = 11,200

Thus,

If the Cabinet Division purchases 11,200 units from Handle Division, the company will be worse by $112,000 ($10 x 11,200).

The correct answer is $(112,000).