Posted: April 13th, 2016

Which of the following costs is NOT relevant to a special-order decision?

1. The income statement for Thomas Manufacturing Company for 2006 is as follows:

Sales (10,000 units) $120,000
Variable expenses 72,000
Contribution margin $ 48,000
Fixed expenses 36,000
Operating income $ 12,000

What is the contribution margin per unit?
a. $7.20
b. $1.20
c. $4.80
d. $120,000

2. Baker Company sells its product for $60. In addition, it has a variable cost ratio of 40 percent and total fixed costs of $9,000. How many units must be sold in order to obtain a before-tax profit of $12,000?
a. 350 units
b. 584 units
c. 875 units
d. 333 units

3. Lewis Production Company had the following projected information for 2006:

Selling price per unit $150
Variable cost per unit $90
Total fixed costs $300,000

What is the break-even point in units?
a. 2,000 units
b. 5,000 units
c. 3,333 units
d. 60,000 units

4. Assume the following cost behavior data for Portrait Company:

Sales price $18.00 per unit
Variable costs $13.50 per unit
Fixed costs $22,500
Tax rate 40%

What volume of sales dollars is required to earn a before-tax income of $27,000?
a. $198,000
b. $180,000
c. $90,000
d. $270,000

5. Assume the following cost behavior data for Portrait Company:

Sales price $18.00 per unit
Variable costs $13.50 per unit
Fixed costs $22,500
Tax rate 40%

What volume of sales dollars is required to earn an after-tax income of $40,500?
a. $360,000
b. $90,000
c. $252,000
d. $495,000

6. Which of the following statements is TRUE when making a decision between two alternatives?
a. Variable costs may not be relevant when the decision alternatives have the same activity levels.
b. Variable costs are not relevant when the decision alternatives have different activity levels.
c. Sunk costs are always relevant.
d. Fixed costs are never relevant.

7. Which of the following costs is NOT relevant to a special-order decision?
a. the direct labor costs to manufacture the special-order units
b. the variable manufacturing overhead incurred to manufacture the special-order units
c. the portion of the cost of leasing the factory that is allocated to the special order
d. all of these costs are relevant