Q&A Hero

Q: Seven Seas Company manufactures 100 luxury yachts per month. Included in each yacht is a compact media center. Seven Seas manufactures the media center in-house, but is considering the possibility of outsourcing that function. At present, the variable cost per unit is $275, and the fixed costs are $39,000 per month. The CEO wishes to boost operational income by $5,000. He has an offer from a foreign producer to provide the media centers at a contract rate of $300 per unit. In order to achieve his objective, how much fixed costs would he have to cut? A) Cut $4,250 of fixed costs B) Cut $2,000 of fixed costs C) Cut $7,500 of fixed costs D) Cut $19,500 of fixed costs

Q: Seven Seas Company manufactures 100 luxury yachts per month. Included in each yacht is a compact media center. Seven Seas manufactures the media center in-house, but is considering the possibility of outsourcing that function. At present, the variable cost per unit is $275, and the fixed costs are $39,000 per month. If they outsource, fixed costs could be reduced by half, and the vacant facilities could be rented out to earn $1,000 per month of rental income. At what contract rate would the two alternatives produce the same operational income? A) $480 per unit B) $499 per unit C) $388 per unit D) $295 per unit

Q: Seven Seas Company manufactures 100 luxury yachts per month. Included in each yacht is a compact media center. Seven Seas manufactures the media center in-house, but is considering the possibility of outsourcing that function, in order to close down some of their facilities and reduce the administrative costs. At present, the variable cost per unit is $275 and the fixed costs are $39,000 per month. Assume that if they outsource, fixed costs could be reduced by 40%. The production manager advised the company to contract with a foreign supplier which offered a contract rate of $420 per unit. If they outsource, how would that affect operational income? A) Operational income would improve by $1,100. B) Operational income would improve by $4,000. C) Operational income would decline by $14,500. D) Operational income would remain the same.

Q: Seven Seas Company manufactures 100 luxury yachts per month. Included in each yacht is a compact media center. Seven Seas manufactures the media center in-house, but is considering the possibility of outsourcing that function, in order to close down some of their facilities and reduce the administrative costs. At present, the variable cost per unit is $275 and the fixed costs are $39,000 per month. Assuming that if they outsource, and the fixed costs could be eliminated entirely, at what contract rate would outsourcing pay off for Seven Seas? (Please round to nearest whole dollar.) A) At any rate lower than $844 per unit B) At any rate lower than $796 per unit C) At any rate lower than $775 per unit D) At any rate lower than $665 per unit

Q: A company produces 100 microwave ovens per month, each of which includes one electrical circuit. The company currently manufactures the circuit in-house but is considering outsourcing the circuits at a contract price of $28 each. Currently, the cost of producing circuits in-house includes variable costs of $26 per circuit and fixed costs of $5,000 per month. Assume the fixed costs are unavoidable, but that company could employ the vacated premises to earn rental income of $700 per month. If the company outsources, how will it affect monthly operating income? A) Operating income will go up by $500. B) Operating income will go down by $2,800. C) Operating income will go down by $200. D) Operating income will go up by $4,800.

Q: A company produces 100 microwave ovens per month, each of which includes one electrical circuit. The company currently manufactures the circuit in-house but is considering outsourcing the circuits at a contract price of $28 each. Currently, the cost of producing circuits in-house includes variable costs of $26 per circuit and fixed costs of $5,000 per month. Assume the company could eliminate all fixed costs by outsourcing, and that there is no alternative use for the facilities presently being used to make circuits. If the company outsources, how will it affect monthly operating income? A) Operating income will go up by $2,300. B) Operating income will go down by $2,800. C) Operating income will go down by $200. D) Operating income will go up by $4,800.

Q: A company produces 100 microwave ovens per month, each of which includes one electrical circuit. The company currently manufactures the circuit in-house but is considering outsourcing the circuits at a contract price of $28 each. Currently, the cost of producing circuits in-house includes variable costs of $26 per circuit and fixed costs of $5,000 per month. Assume the company could cut fixed costs in half by outsourcing, and that there is no alternative use for the facilities presently being used to make circuits. If the company outsources, how will it affect monthly operating income? A) Operating income will go up by $2,300. B) Operating income will go down by $2,800. C) Operating income will go down by $200. D) Operating income will stay the same.

Q: A company produces 100 microwave ovens per month, each of which includes one electrical circuit. The company currently manufactures the circuit in-house but is considering outsourcing the circuits at a contract price of $28 each. Currently, the cost of producing circuits in-house includes variable costs of $26 per circuit and fixed costs of $5,000 per month. Assume the company could not reduce any fixed costs by outsourcing, and that there is no alternative use for the facilities presently being used to make circuits. If the company outsources, how will it affect monthly operating income? A) Operating income will go up by $4,800. B) Operating income will go down by $2,800. C) Operating income will go down by $200. D) Operating income will stay the same.

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Q: Alexandria Semiconductors produces 300,000 hi-tech computer chips per month. Each chip uses a component which Alexandria makes in-house. The variable costs to make the component are $0.80 per unit, and the fixed costs run $956,000 per month. Alexandria has been approached by a foreign producer who can supply the component, ready-made and with acceptable quality standards for $0.60 each. If Alexandria chooses to outsource, it could reduce the fixed costs by 50%. Alexandria would have no other use for the facilities currently employed in making the component. If Alexandria decides to outsource, how would that affect the operating income? A) There would be no effect on operating income. B) Operating income would go up by $538,000. C) Operating income would go up by $180,000. D) Operating income would go down by $60,000.

Q: Alexandria Semiconductors produces 300,000 hi-tech computer chips per month. Each chip uses a component which Alexandria makes in-house. The variable costs to make the component are $0.80 per unit, and the fixed costs run $956,000 per month. Alexandria has been approached by a foreign producer who can supply the component, ready-made and with acceptable quality standards for $0.60 each. The fixed costs are unavoidable, and Alexandria would have no other use for the facilities currently employed in making the component. If Alexandria decides to outsource, how would that affect the operating income? A) There would be no effect on operating income. B) Alexandria could save $120,000 per month in costs. C) Alexandria could save $60,000 per month in costs. D) Alexandria's costs would go up by $2,000 per month.

Q: A chemical company spent $480,000 to produce 144,000 gallons of a chemical, which can be sold for $4.32 per gallon. The chemical can be further processed into a weed killer which can be sold for $6.40 per gallon; it will cost $256,320 to process the chemical into a weed killer. Which of the following is TRUE? A) To maximize operating income, the company should continue to sell the chemical as is. B) If the company decides to process further, it will increase operating income by $299,520. C) If the company decides to process further, it will increase operating income by $43,200. D) If the company decides to process further, it will decrease operating income by $256,320.

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Q: Action Products is deciding whether to outsource production of a certain component that is included in all of its products. It currently costs Action Products $0.95 to make each component in-house. If Action Products outsources, it can buy the component ready-made for $0.80 each. If Action Products outsources, it could shut down the production facilities it is currently using to manufacture the component, and save $10,000 a year in fixed costs. After analyzing both options, Action Products decided to continue making the component in-house. In the analysis done, which of the following items would be considered an opportunity cost? A) The difference between $0.95 and $0.80 per component B) The savings of $10,000 per year in fixed costs C) The difference between the fixed and variable costs to make the component in-house D) The contract cost of $0.80 to buy from outside source

Q: Which of the following phrases MOST accurately describe opportunity cost? A) The cost incurred to gain the opportunity to make a sale B) The benefit gained by choosing a certain course of action C) The benefit given up by not choosing an alternative course of action D) Costs which have been incurred in the past

Q: Shasta Company is trying to decide whether to continue to manufacture a particular component or to buy the component from an outside supplier. Which of the following is IRRELEVANT with respect to this decision? A) The quality of the component purchased from the outside supplier B) The outside supplier's ability to deliver the component on a timely basis C) The alternative uses of the facilities being used to currently manufacture the component D) The unavoidable fixed manufacturing costs associated with the manufacture of the component

Q: Gnome Company is trying to decide whether to continue to manufacture a particular component or to buy the component from an outside supplier. Which of the following is RELEVANT to this decision? A) The potential uses of the facilities that are currently used to manufacture the component B) The insurance on the manufacturing facility which will continue regardless of the decision C) Allocated corporate fixed costs which would have to be allocated to other products if the component is no longer manufactured D) The cost of the equipment that is currently being used to manufacture the component

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Q: DC Electronics uses a standard part in the manufacture of several of its radios. The cost of producing 30,000 parts is $90,000, which includes fixed costs of $33,000 and variable costs of $57,000. The company can buy the part from an outside supplier for $2.50 per unit, and avoid 30% of the fixed costs. Assume that factory space freed up by purchasing the part from an outside source can be used to manufacture another product that can earn profit of $11,600. If DC outsources, what will the effect on operating income be? A) Up $15,000 B) Down $13,300 C) Down $24,900 D) Up $3,400

Q: DC Electronics uses a standard part in the manufacture of several of its radios. The total cost of producing 30,000 parts is $90,000, which includes fixed costs of $33,000 and variable costs of $57,000. The company can buy the part from an outside supplier for $2.50 per unit, and avoid 30% of the fixed costs. If DC Electronics decides to outsource the production of the part, how will it impact operating income? A) Up $15,000 B) Down $24,900 C) Up $132,000 D) Down $132,000

Q: Victory Company makes a special kind of racing tire. Variable costs are $220, and fixed costs are $30,000 per month. Victor sells 500 units per month at a price of $300. If Victory upgrades the quality of the tire, they believe they can boost the price to $342. If so, the variable cost will go up to $230 and the fixed costs will rise by 50%. The CEO wishes to increase his operational income by 25%. If Victory decides to upgrade the product according to the data above, the CEO will reach his goal.

Q: Nordin Avionics makes aircraft instrumentation. Their basic navigation radio requires $80 in variable costs and requires $2,000 per month in fixed costs. If they process the radio further to enhance its functionality, it will require an additional $25 per unit of variable costs, but no change to the fixed costs. The marketing manager believes they would be able to boost their price of the radio from $260 to $280. In making this decision, the amount of fixed costs per month is a relevant piece of information.

Q: When a company is considering the possibility of processing their product further to achieve higher sales revenues, they must carefully study the production costs needed to make the basic productue004before processing furtherue004in order to come to an informed decision.

Q: When a company is considering the possibility of processing their product further to achieve higher sales revenues, the rule is as follows: as long as the additional processing generates higher sales revenues, it is the preferred alternative.

Q: When a company is considering the possibility of processing their product further to achieve higher sales revenues, the rule is as follows: if incremental revenues exceed incremental costs, then further processing will enhance operational profits.

Q: Arlo Company makes bulk quantities of cleaning fluids. They currently sell 1,000 containers a month at a price of $22 per unit. If they added a newer scent, they could charge $22.75 per unit for the improved product. It would cost them a total of $700 per month to make that alteration. If they decide to process further, it will improve their operational income.

Q: A company produces 100 microwave ovens per month, each of which includes one electrical circuit. The company currently manufactures the circuit in-house but is considering outsourcing the circuits at a contract price of $28 each. Currently, the cost of producing circuits in-house includes variable costs of $26 per circuit and fixed costs of $5,000 per month. The controller says that they could outsource production of the circuit, and then as long as they could get fixed cost reductions greater than $200 per month, it would improve earnings. Is his statement true or false?

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Q: Custom Furniture manufactures a small table and a large table. The small table sells for $800, has variable costs of $520 per table, and takes eight direct labor hours to manufacture. The large table sells for $1,200, has variable costs of $720, and takes sixteen direct labor hours to manufacture. The company has a maximum of 4,800 direct labor hours per month when operating at full capacity. If there are no constraints on sales of either product, and the company could choose any proportions of product mix that they wanted, what is the optimum product mix to maximize operating income? A) 900 units of small, 100 units of large B) Zero units of small, 300 units of large C) 300 units of small, 200 units of large D) 600 units of small, zero units of large

Q: Custom Furniture manufactures a small table and a large table. The small table sells for $800, has variable costs of $520 per table, and takes eight direct labor hours to manufacture. The large table sells for $1,200, has variable costs of $720, and takes sixteen direct labor hours to manufacture. The company has a maximum of 4,800 direct labor hours per month when operating at full capacity. If there are no constraints on sales of either product, and the company could choose any proportions of product mix that they wanted, what is the maximum contribution margin the company could earn? A) $122,000 B) $176,000 C) $154,500 D) $168,000

Q: In making product mix decisions under constraining factors, which of the following is the key to choosing the product type to be maximized? A) Revenue per unit B) Contribution margin per unit of product C) Contribution margin per unit of the constraining factor D) Gross profit per unit using absorption costing

Q: Custom Furniture manufactures a small table and a large table. The small table sells for $800, has variable costs of $520 per table, and takes eight direct labor hours to manufacture. The large table sells for $1,200, has variable costs of $720, and takes sixteen direct labor hours to manufacture. Calculate the contribution margin per direct labor hour for the large table. A) $30 per direct labor hour B) $32 per direct labor hour C) $35 per direct labor hour D) $36 per direct labor hour

Q: Custom Furniture manufactures a small table and a large table. The small table sells for $800, has variable costs of $520 per table, and takes eight direct labor hours to manufacture. The large table sells for $1,200, has variable costs of $720, and takes sixteen direct labor hours to manufacture. Calculate the contribution margin per direct labor hour for the small table. A) $29 per direct labor hour B) $32 per direct labor hour C) $35 per direct labor hour D) $36 per direct labor hour

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Q: Foster Corporation produces two products-P and Q. P sells for $4.00 per unit; Q sells for $5.25 per unit. Variable costs for P and Q are respectively, $2.50 and $3.09. There are 3,570 direct labor hours per month available for producing the two products. Product P requires 3 direct labor hours per unit and Product Q requires 4.5 direct labor hours per unit. The company can sell up to 800 units of each kind per month. What is the maximum monthly contribution margin that Foster can generate under the circumstances? (Please round to nearest whole dollar.) A) $1,785 B) $1,714 C) $1,762 D) $2,567

Q: Foster Corporation produces two products-P and Q. P sells for $4.00 per unit; Q sells for $5.25 per unit. Variable costs for P and Q are respectively, $2.50 and $3.09. There are 3,570 direct labor hours per month available for producing the two products. Product P requires 3 direct labor hours per unit and Product Q requires 4.5 direct labor hours per unit. The company can sell as many of either product as it can produce. What is the maximum monthly contribution margin that Foster can generate under the circumstances? (Please round to nearest whole dollar.) A) $1,785 B) $1,714 C) $1,650 D) $2,567

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Q: Which of the following statements describes a scenario when management should consider dropping a business division? A) The division has consistently reported an operating loss. B) The division's avoidable fixed costs are less than its contribution margin. C) The division's avoidable fixed costs are greater than its contribution margin. D) The division's unavoidable fixed costs are greater than its operating loss.

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Q: In deciding whether to drop its electronics product line, a company's manager should consider all of the following EXCEPT: A) the variable and fixed costs it could save by dropping the product line. B) the revenues it would lose from dropping the product line. C) how dropping the electronics product line would affect sales of its other products, like CDs. D) the amount of unavoidable fixed costs.

Q: If a product line has a negative contribution margin, the product line should probably be dropped, assuming no other significant considerations.

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Q: In making product mix decisions under constraining factors, a company should maximize sales of the product with the highest contribution margin per unit.

Q: Custom Furniture manufactures a small table and a large table. The small table sells for $800, has variable costs of $520 per table, and takes eight direct labor hours to manufacture. The large table sells for $1,200, has variable costs of $720, and takes sixteen direct labor hours to manufacture. The small table has a lower contribution margin per unit, but a higher contribution margin per direct labor hour.

Q: Custom Furniture manufactures a small table and a large table. The small table sells for $800, has variable costs of $520 per table, and takes eight direct labor hours to manufacture. The large table sells for $1,200, has variable costs of $720, and takes sixteen direct labor hours to manufacture. If the company has no sales limitations on either product, they should make and sell as many of the large tables as possible to maximize operating income.

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