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1. (Points: 1) Peluso Company, a manufacturer of snowmobiles, is operating at 70% of plant capacity. Peluso’s plant manager is considering making the headlights now being purchased from an outside supplier for $11 each. The Peluso plant has idle equipment that could be used to manufacture the headlights. The design engineer estimates that each headlight requires $4 of direct materials, $3 of direct labor, and $6.00 of manufacturing overhead. Forty percent of the manufacturing overhead is a fixed cost that would be unaffected by this decision. A decision by Peluso Company to manufacture the headlights should result in a net gain (loss) for each headlight of: a. $(2.00) b. $1.60 c. $0.40 d. $2.80 2. (Points: 1) Ellis Television makes and sells portable televisions. Each television regularly sells for $210. The following cost data per television is based on a full capacity of 10,000 televisions produced each period. A special order has been received by Ellis for a sale of 2,000 televisions to an overseas customer. The only selling costs that would be incurred on this order would be $6 per television for shipping. Ellis is now selling 6,000 televisions through regular channels each period. What should be the minimum selling price per television in negotiating a price for this special order? a. $174 b. $168 c. $210 d. $180 3. (Points: 1) Joint production costs are relevant costs in decisions about what to do with a product from the split-off point onward in the production process. a. TRUE b. untrue 4. (Points: 1) Power Systems Inc. manufactures jet engines for the United States armed forces on a cost-plus basis. The production cost of a particular jet engine is shown below: If production of this engine was discontinued, the production capacity would be idle, and the supervisor would be laid off. The depreciation referred to over is for special equipment that would have no resale value and that does not wear out through use. When asked to bid on the next contract for this engine, the minimum unit price that Power Systems should bid is: a. $408,000 b. $365,000 c. $397,000 d. $385,000 5. (Points: 1) Fillip Corporation makes 4,000 units of part U13 each year. This part is used in one of the company’s products. The company’s Accounting Department reports the following costs of producing the part at this level of activity: An outside supplier has offered to make and sell the part to the company for $21.60 each. If this offer is accepted, the supervisor’s salary and every of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier’s offer were accepted, only $3,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part U13 would be used to make more of one of the company’s other products, generating an additional segment margin of $13,000 per year for that product. What would be the impact on the company’s overall net operating income of buying part U13 from the outside supplier? a. Net operating income would increase by $13,000 per year. b. Net operating income would decline by $42,600 per year. c. Net operating income would decline by $68,600 per year. d. Net operating income would increase by $9,200 per year. 6. (Points: 1) The Cabinet Shoppe is considering the addition of a new line of kitchen cabinets to its current product lines. Expected cost and revenue data for the new cabinets are as follows: If the new cabinets are added, it is expected that the contribution margin of other product lines at the cabinet store will drop by $20,000 per year. If the new cabinet product line is added next year, the increase in net operating income resulting from this decision would be: a. $80,000 b. $225,000 c. $125,000 d. $105,000
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