Question

1.Division 1 has the following information: Sales is $200,000; Variable costs are $130,000; Fixed costs are $100,000; leaving a loss of $30,000. If we drop division 1, 60% of the fixed costs could be saved. Should we drop division 1?

a.	Yes, overall company net income would go up by $30,000

b.	No, overall company net income would go down by $30,000

c.	Yes, overall company net income would go up by $10,000

d.	No, overall company net income would go down by $10,000

2.Should we accept a special order for 1,000 at a selling price of $40 if our variable costs are $15 per unit and there would be an additional fixed costs of $12,000?

a.	Yes, net income would go up by $25,000

b.	No, net income would go down by $25,000

c.	No, net income would go down by $13,000

d.	Yes, net income would go up by $13,000

3.Given the following information, determine the product cost of one unit: Direct Materials = $60; Direct labor = $10; Apply Overhead based on $2 per Direct Labor hour; Direct labor hours is 4 hours per unit.

a.	$70 per unit

b.	$80 per unit

c.	$78 per unit

d.	$85 per unit

Answer 1

1.

Cost Analysis

Contribution margin lost ($200,000-$130,000)	($70,000)
Add : Savings from avoidable fixed costs ($100,000*60%)	$60,000
Net loss from dropping Division 1	($10,000)

The answer is d.

2.

Relevant costs = Variable costs + Fixed costs

= (1,000 * $15) + $12,000

= $27,000

Relevant revenues = 1,000 * $40

= $40,000

Increase in Net income = Relevant revenues - Relevant costs

= $40,000 - $27,000

= $13,000

The answer is d.

3.

Product cost = Direct materials + Direct labor + Overhead

= $60 + $10 + (4 * $2)

= $78

The answer is c.

answered by: anonymous