Question

1. Delaney Company is considering replacing equipment that originally cost $505,000 and that has $353,500 accumulated...

1.

Delaney Company is considering replacing equipment that originally cost $505,000 and that has $353,500 accumulated depreciation to date. A new machine will cost $893,000. What is the sunk cost in this situation?

a.$151,500

b.$505,000

c.$121,200

d.$741,500

2.

Lara Technologies is considering a cash outlay of $227,000 for the purchase of land, which it could lease out for $40,890 per year. If alternative investments that yield a 17% return are available, the opportunity cost of the purchase of the land is

a.$79,480

b.$40,890

c.$38,590

d.$2,300

3.

Stryker Industries received an offer from an exporter for 30,000 units of product at $18 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data are available:

Domestic unit sales price $24
Unit manufacturing costs:
Variable 11
Fixed 3

What is the amount of income or loss from the acceptance of the offer?

a.$330,000 loss

b.$540,000 income

c.$720,000 loss

d.$210,000 income

4. Keating Co. is considering disposing of equipment with a cost of $75,000 and accumulated depreciation of $52,500. Keating Co. can sell the equipment through a broker for $25,000, less a 6% broker commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $46,000. Keating will incur repair, insurance, and property tax expenses estimated at $10,000 over the five-year period. At lease-end, the equipment is expected to have no residual value. The net differential income from the lease alternative is

a.$15,000

b.$12,500

c.$8,750

d.$18,750

5.

Sparrow Co. is currently operating at 80% of capacity and is currently purchasing a part used in its manufacturing operations for $8.00 a unit. The unit cost for Sparrow Co. to make the part is $9.00, which includes $0.60 of fixed costs. If 4,000 units of the part are normally purchased each year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease for making the part rather than purchasing it?

a.$4,000 increase

b.$1,600 increase

c.$20,000 decrease

d.$12,000 decrease

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