THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 43 THROUGH 46.
Flowers-For-Everyone is considering replacing its existing delivery van with a new one. The new van can offer considerable savings in operating costs. Information about the existing van and the new van follow: Existing van New van Original cost $100,000 $180,000 Annual operating cost $ 35,000 $ 20,000 Accumulated depreciation $ 60,000 --- Current salvage value of the existing van $ 45,000 --- Remaining life 10 years 10 years Salvage value in 10 years $ 0 $ 0 Annual depreciation $ 4,000 $ 18,000
43. Sunk costs include: a. the original cost of the existing van b. the original cost of the new van c. the current salvage value of the existing van d. the annual operating cost of the new van
44. Relevant costs for this decision include: a. the original cost of the existing van b. accumulated depreciation c. the current salvage value of the existing van d. the salvage value in 10 years
45. If Flowers-For-Everyone replaces the existing delivery van with the new one, over the next
10 years operating income will: a. decrease by $180,000 b. increase by $150,000 c. decrease by $150,000 d. None of the above is correct.
46. Should Flowers-for-Everyone replace the existing van with the new van? What are the
savings or additional cost? a. Yes replace, net savings of $15,000 b. Yes replace, net savings of $150,000 c. No replace, additional costs of $120,000 d. No replace, additional costs of $30,000
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THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 47 AND 48.
Jim’s 5-year-old Geo Prizm requires repairs estimated at $3,000 to make it roadworthy again. His friend, Julie, suggested that he should buy a 5-year-old used Honda Civic instead for $3,000 cash. Julie estimated the following costs for the two cars:
Acquisition cost Repairs
Annual operating costs
(Gas, maintenance, insurance)
Geo Prizm $15,000 $ 3,000 $ 2,280
Honda Civic $3,000
---
$2,100
47. 48.
The cost(s) NOT relevant for this decision is(are): a. the acquisition cost of the Geo Prizm b. the acquisition cost of the Honda Civic c. the repairs to the Geo Prizm
d. the annual operating costs of the Honda Civic
What should Jim do? What are his savings in the first year? a. Buy the Honda Civic; $9,780 b. Fix the Geo Prizm; $5,518 c. Buy the Honda Civic; $180 d. Fix the Geo Prizm; $5,280
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 49 THROUGH 51. Konrade’s Engine Company manufactures part TE456 used in several of its engine models. Monthly production costs for 1,000 units are as follows:
Direct materials Direct labor
Flexible support costs
Capacity-related support costs Total costs $ 40,000 10,000 30,000 20,000 $100,000 It is estimated that 10% of the capacity-related support costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier. Konrade’s Engine Company has the option of purchasing the part from an outside supplier at $85 per unit.
49. If Konrade’s Engine Company accepts the offer from the outside supplier, the monthly
avoidable costs (costs that will no longer be incurred) total: a. $ 82,000 b. $ 98,000 c. $ 50,000 d. $100,000
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50. If Konrade’s Engine Company purchases 1,000 TE456 parts from the outside supplier per
month, then its monthly operating income will: a. increase by $2,000 b. increase by $80,000 c. decrease by $3,000 d. decrease by $85,000
51. The maximum price that Konrade’s Engine Company should be willing to pay the outside
supplier is: a. $80 per TE456 part b. $82 per TE456 part c. $98 per TE456 part d. $100 per TE456 part
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 52 AND 53.
Melodee’s Preserves currently makes jams and jellies and a variety of decorative jars used for packaging. An outside supplier has offered to supply all of the needed decorative jars. For this make-or-buy decision, a cost analysis revealed the following avoidable unit costs for the decorative jars:
52. 53.
Direct materials Direct labor
Unit-related support costs Batch-related support costs
Product-sustaining support costs Facility-sustaining support costs Total cost per jar The relevant cost per jar is: a. $0.28 per jar b. $0.38 per jar c. $0.72 per jar d. $1.00 per jar
$0.25 0.03 0.10 0.12 0.22 0.28 $1.00 The maximum price that Melodee’s Preserves should be willing to pay for the decorative jars is:
a. $0.28 per jar b. $0.38 per jar c. $0.72 per jar d. $1.00 per jar
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THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 54 AND 55.
Denly Company has three products, A, B, and C. The following information is available: Product A Product B Product C Sales $60,000 $90,000 $24,000 Flexible costs 36,000 48,000 15,000 Contribution margin 24,000 42,000 9,000 Capacity-realted costs: Avoidable 9,000 18,000 6,000 Unavoidable 6,000 9,000 5,400 Operating income $ 9,000 $15,000 $ (2,400)
54. Denly Company is thinking of dropping Product C because it is reporting a loss.
Assuming Denly drops Product C and does not replace it, operating income will: a. increase by $2,400 b. increase by $3,000 c. decrease by $3,000 d. decrease by $5,400
55. Assuming Product C is discontinued and the space formerly used to produce Product C is
rented for $12,000 per year, operating income will: a. increase by $6,600 b. increase by $9,000 c. increase by $12,000 d. increase by $14,400
56. Which of the following does NOT need to be considered when evaluating a make-or-buy
decision? a. savings from an alternative use of the production equipment b. the original cost of the production equipment c. the quality of the supplier's product d. the reliability of the delivery schedule
57. When making decisions: a. quantitative factors are the most important b. qualitative factors are the most important c. appropriate weight must be given to both quantitative and qualitative factors d. both quantitative and qualitative factors are unimportant
58. Employee morale at Dos Santos, Inc., is very high. This type of information is known as: a. a qualitative factor b. a quantitative factor c. a differential factor d. an opportunity cost
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59. 60. 61. 62.
Which of following are risks of outsourcing the production of a part? a. unpredictable quality b. unreliable delivery
c. unscheduled price increases
d. All of the above are risks of outsourcing.
Which of the following minimize the risks of outsourcing? a. the use of short-term contracts that specify price
b. the responsibility for on-time delivery is now the responsibility of the supplier c. building close relationships with the supplier
d. All of the above minimize the risks of outsourcing.
When evaluating a make-or-buy decision, which of the following does NOT need to be considered?
a. alternative uses of the production capacity b. the original cost of the production equipment c. the quality of the supplier's product
d. the reliability of the supplier's delivery schedule
In __________, all similar equipment or functions are grouped together. a. a process layout b. a product layout
c. cellular manufacturing d. just-in-time production
Characteristics of a process layout include: a. continuous processing b. long production paths
c. small amounts of inventory
d. no work-in-process storage areas
In _______, equipment is organized to accommodate the production of a specific product. a. a process layout b. a product layout
c. cellular manufacturing d. just-in-time production
63.
64.
65. Characteristics of a product layout include: a. raw materials and purchased parts are delivered directly to the production line where
they are needed
b. low-volume production c. a U-shaped layout d. small batches of unique products
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