Posted: April 14th, 2016

What would be the price for a product that has a cost of $500??

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

8. Which of the following costs is NOT relevant to a make-or-buy decision?
a. $10,000 of direct labor used to manufacture the parts
b. $30,000 of depreciation on the plant used to manufacture the parts
c. the supervisor’s salary of $25,000 that will be avoided if the part is purchased from an outside supplier
d. $15,000 in rent from leasing the production space to another company if the part is purchased from an outside supplier

9. Foster Industries manufactures 20,000 components per year. The manufacturing cost of the components was determined as follows:

Direct materials $150,000
Direct labor 240,000
Inspecting products 60,000
Providing power 30,000
Providing supervision 40,000
Setting up equipment 60,000
Moving materials 20,000
Total $600,000

If the component is not produced by Foster, inspection of products and provision of power costs will only be 10 percent of the production costs; moving materials costs and setting up equipment costs will only be 50 percent of the production costs; and supervision costs will amount to only 40 percent of the production amount. An outside supplier has offered to sell the component for $25.50.

What is the effect on income if Foster Industries purchases the component from the outside supplier?
a. $25,000 increase
b. $45,000 increase
c. $90,000 decrease
d. $90,000 increase

10. Foster Industries manufactures 20,000 components per year. The manufacturing cost of the components was determined as follows:

Direct materials $150,000
Direct labor 240,000
Variable manufacturing overhead 90,000
Fixed manufacturing overhead 120,000
Total $600,000

An outside supplier has offered to sell the component for $25.50.

Foster Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component from the outside supplier.

What is the effect on income if Foster purchases the component from the outside supplier?
a. $45,000 increase
b. $15,000 increase
c. $75,000 decrease
d. $105,000 increase

11. Jamie Corporation had the following information:

Revenues $250,000
Cost of goods sold:
Direct materials $50,000
Direct labor 37,500
Overhead 62,500 150,000
Gross profit $100,000
Selling and administrative expenses 37,500
Operating income $ 62,500

What would be the price for a product that has a cost of $500, assuming that the markup is based on cost of goods sold?
a. $834
b. $625
c. $708
d. $2,000