Question

10. A company has the choice of either selling 600 defective units as scrap or rebuilding them. The company could sell the defective units as they are for $2.00 per unit. Alternatively, it could rebuild them with incremental costs of $0.60 per unit for materials, $1.00 per unit for labor, and $0.80 per unit for overhead, and then sell the rebuilt units for $5.00 each. What is the amount of incremental cost from rebuilding?

$3.00 per unit.

$5.00 per unit.

$7.00 per unit.

$2.40 per unit.

$0.60 per unit.

11. Frederick Co. is thinking about having one of its products manufactured by an outside supplier.

Currently, the cost of manufacturing 5,000 units follows:

Direct material$62,000 Direct labor 47,000 Variable factory overhead 38,000 Factory overhead 52,000

If Frederick can buy 5,000 units from an outside supplier for $130,000, it should:

Make the product because current factory overhead is less than $130,000.

Make the product because the cost of direct material plus direct labor of manufacturing is less than $130,000.

Make the product because factory overhead is a sunk cost.

Buy the product because total fixed and variable manufacturing costs are greater than $130,000.

Buy the product because the total incremental costs of manufacturing are greater than $130,000.

12. The following present value factors are provided for use in this problem.

Periods	Present Value of $1 at 8%	Present Value of an Annuity of $1 at 8%
1	0.9259	0.9259
2	0.8573	1.7833
3	0.7938	2.5771
4	0.7350	3.3121

Cliff Co. wants to purchase a machine for $40,000, but needs to earn an 8% return. The expected year-end net cash flows are $12,000 in each of the first three years, and $16,000 in the fourth year. What is the machine's net present value?

$(9,075).

$2,685.

$42,685.

$(28,240).

Answer 1

Formula sheet

A	B	C	D	E	F	G
2
3
4		10)
5
6		Amount of incremental cost per unit can be calculated as follows:
7
8		Incremental cost of materials	0.6	per unit
9		Incremental cost of labor	1	per unit
10		Incremental cost of overhead	0.8	per unit
11		Total incremental cost	=SUM(D8:D10)	per unit
12
13		Hence Total incremental cost is	=D11	per unit
14		Thus fourth option is correct.
15