Name: __________________________ Date: _____________

1. It costs Lannon Fields $28 of variable costs and $12 of allocated fixed costs to produce
an industrial trash can that sells for $60. A buyer in Mexico offers to purchase 3,000
units at $36 each. Lannon Fields has excess capacity and can handle the additional
production. What effect will acceptance of the offer have on net income?
A) Decrease $12,000
B) Increase $12,000
C) Increase $108,000
D) Increase $24,000
2. Tex's Manufacturing Company can make 100 units of a necessary component part with
the following costs:
Direct Materials
$120,000
Direct Labor
25,000
Variable Overhead
45,000
Fixed Overhead
30,000
If Tex's Manufacturing Company can purchase the component externally for $190,000
and only $5,000 of the fixed costs can be avoided, what is the correct make-or-buy
decision?
A) Buy and save $5,000
B) Make and save $5,000
C) Make and save $15,000
D) Buy and save $15,000
3. Chung Inc. is considering the replacement of a piece of equipment with a newer model.
The following data has been collected:
New Equipment
Old Equipment
Purchase price
$225,000
$375,000
Accumulated depreciation
90,000
-0Annual operating costs
300,000
240,000
If the old equipment is replaced now, it can be sold for $60,000. Both the old
equipment's remaining useful life and the new equipment's useful life is 5 years.
What is the net cost of the new equipment?
A) $375,000
B) $315,000
C) $150,000
D) $75,000

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4. A company contemplating the acceptance of a special order has the following unit cost
behavior, based on 10,000 units:
Direct materials
$ 4
Direct labor
10
Variable overhead
8
Fixed overhead
6
A foreign company wants to purchase 2,000 units at a special unit price of $25. The
normal price per unit is $40. In addition, a special stamping machine will have to be
purchased for $4,000 in order to stamp the foreign company's name on the product. The
incremental income (loss) from accepting the order is
A) $6,000.
B) $2,000.
C) $(6,000).
D) $(2,000).
5. A company's unit costs based on 100,000 units are:
Variable costs
$75
Fixed costs
30
The normal unit sales price per unit is $165. A special order from a foreign company
has been received for 5,000 units at $135 a unit. In order to fulfill the order, 3,000 units
of regular sales would have to be foregone.
The opportunity cost associated with this order is
A) $225,000.
B) $495,000.
C) $270,000.
D) $405,000.
6. NF Toy Company is unsure of whether to sell its product assembled or unassembled.
The unit cost of the unassembled product is $24 and NF Toy would sell it for $52. The
cost to assemble the product is estimated at $17 per unit and the company believes the
market would support a price of $68 on the assembled unit. What decision should NF
Toy make?
A) Sell before assembly, the company will be better off by $1 per unit.
B) Sell before assembly, the company will be better off by $16 per unit.
C) Process further, the company will be better off by $23 per unit.
D) Process further, the company will be better off by $11 per unit.

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7. Tex's Manufacturing Company can make 100 units of a necessary component part with
the following costs:
Direct Materials
$120,000
Direct Labor
25,000
Variable Overhead
45,000
Fixed Overhead
30,000
If Tex's Manufacturing Company purchases the component externally, $20,000 of the
fixed costs can be avoided. At what external price for the 100 units is the company
indifferent between making or buying?
A) $190,000
B) $200,000
C) $210,000
D) $220,000
8. Ortiz Co. produces 5,000 units of part A12E. The following costs were incurred for that
level of production:
Direct materials
$ 55,000
Direct labor
160,000
Variable overhead
75,000
Fixed overhead
175,000
If Ortiz buys the part from an outside supplier, $40,000 of the fixed overhead is
avoidable.
If the outside supplier offers a unit price of $68, net income will increase (decrease) by
A) $(10,000).
B) $125,000.
C) $(50,000).
D) $85,000.

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9. Crigui Music produces 60,000 CDs on which to record music. The CDs have the
following costs:
Direct Materials
$13,000
Direct Labor
15,000
Variable Overhead
3,000
Fixed Overhead
7,000
None of Crigui's fixed overhead costs can be reduced, but another product could be
made that would increase profit contribution by $4,000 if the CDs were acquired
externally. If cost minimization is the major consideration and the company would
prefer to buy the CDs, what is the maximum external price that Crigui would be willing
to accept to acquire the 60,000 units externally?
A) $38,000
B) $34,000
C) $35,000
D) $42,000
10. Able Company's unit manufacturing cost is:
Variable Costs
$50
Fixed Costs
25
A special order for 2,000 units has been received from a foreign company. The unit
price requested is $55. The normal unit price is $80. If the order is accepted, unit
variable costs will increase by $2 for additional freight costs. If the order is accepted,
incremental profit (loss) will be
A) $(46,000).
B) $6,000.
C) $(40,000).
D) $10,000.
11. Janssen Company has old inventory on hand that cost $24,000. Its scrap value is
$32,000. The inventory could be sold for $80,000 if manufactured further at an
additional cost of $24,000. What should Janssen do?
A) Sell the inventory for $32,000 scrap value
B) Dispose of the inventory to avoid any further decline in value
C) Hold the inventory at its $24,000 cost
D) Manufacture further and sell it for $80,000.

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12. Moreland Clean Company spent $8,000 to produce Product 89, which can be sold as is
for $10,000, or processed further incurring additional costs of $3,000 and then be sold
for $14,000. Which amounts are relevant to the decision about Product 89?
A) $8,000, $10,000, and $14,000
B) $8,000, $3,000, and $14,000
C) $10,000, $3,000, and $14,000
D) $8,000, $10,000, $3,000 and $14,000

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Answer Key
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.

D
A
B
B
C
A
C
A
C
B
D
C

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