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3. Ram Company produces two products, AR4 and AR8. AR4 has a
contribution per unit of $3.00 and requires 0.3 machine hours per unit, whereas
AR8 has a contribution of $2.50 per unit and requires 0.2 machine hours per
unit. The companys policy is to sell only products with a contribution per
machine, the constrained or scare resource, greater than $9.90. What should
they do?
a. Sell both AR4 and AR8.
b. Sell only AR4.
c. Sell only AR8.
d. Sell neither AR4 nor AR8.
4. An opportunity cost is
a. Completely intangible and not measurable.
b. The sacrificed potential benefit of choosing one alternative over another.
c. The sacrificed past benefit of choosing one alternative over another.
d. Not relevant to any decision.
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5. Lido Company manufactures product MY40. Currently, the product sells
for $55, with total costs to manufacture of $30. In order to add a new feature
to the product, additional direct materials of $3.00, direct labor of $2.50, and
batch-related costs of $1.45 per unit would have to be incurred. What are the
incremental costs per unit of the decision to add the new feature?
a. $3.00
b. $2.50
c. $6.95
d. $5.50
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9. Plasticraft Company produces and sells a single product called a
DROID. Plasticraft has excess capacity to manufacture 5,000 additional
DROIDS. Variable costs are $35 per unit, and fixed costs total $300,000 per
month. Ajax Company has offered to pay Plasticraft $39 per unit for a one-
time special order for 4,000 DROIDS. This special order requires some
additional selling expenses of $1.50 per unit. Should Plasticraft accept this
special order?
Linus Lucy
Selling price $25.00 $20.00
Variable costs
Direct materials $9.00 $6.00
Direct labor 5.00 2.00
Indirect manufacturing 4.00 2.00
The cost of direct labor is $10.00 per hour and only 500 hours of labor time
are available each week.
a.) Determine the contribution margin per direct labor hour for each product.
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11. Charlies Chairs manufactures 2 models of chairs, Standard and
Premium. Weekly demand is estimated to be 120 units of the Standard
Model and 70 units of the Premium Model. Only 420 machine hours are
available per week. The following per unit data apply:
Standard Premium
Contribution margin per unit $12 $15
Number of machine hours 2 3
a.) For each model, compute contribution margin per machine hour.
b.) To maximize weekly production profits, how many units would you
recommend of each model?
c.) If there are 500 machine hours available per week (instead of only
420 MH), how many chairs of each model should Charlies produce to
maximize profits.?
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Chapter 6:Activity and Process Decisions
2. Which of the following is NOT one of the four cost of quality categories?
a. Appraisal costs
b. Internal failure costs
c. Prevention costs
d. Benchmarking costs
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6. Shields Company has the capacity to produce 5,000 units of product H199.
Currently it is producing 3,900 units. Foster Company asks Shield to produce
800 more units of H199 for a special order. Neither new machinery nor extra
plant space is needed for the special order. Which of the following statements
is true?
a. Only product-sustaining costs will increase.
b. Only facility-sustaining costs will increase.
c. Both product-sustaining and facility sustaining costs will increase.
d. Neither product-sustaining nor facility-sustaining costs will increase.
8. All of the following statements about just-in-time (JIT) are true, EXCEPT:
a. Processing time decreases
b. It simplifies accounting
c. It reduces the amount of money invested in inventory
d. JIT processing systems must be reliable
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9. Gumby Company is determining whether to outsource product Pokey.
An outside bidder has quoted a price of $52. The following costs of the
product when produced in-house are shown below on a per-unit basis:
Pokey
Direct materials $13.95
Direct labor 15.00
Unit-related overhead 17.80
Batch-related overhead 6.55
Product-sustaining overhead 3.25
Facility-sustaining overhead 8.35
TOTAL $64.90
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10. Eastco purchased a stamping machine four months ago and now
realizes that a much better machine is available on the market. The
following information pertains to both machines.
OLD NEW
Acquisition cost $150,000 $200,000
Remaining Life 3 years 3 years
Current disposal value $60,000 -
Salvage value at the end of 3 years $6,000 $9,000
Annual operating costs $60,000 $12,000
The estimates above do not include rework costs. The new stamping
machine also will reduce the defect rate from 4% to 2%. All defective units
are reworked at a cost of $1.25 per unit. Eastco produces 150,000 units
annually.
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11. Jerrys 5-year-old Chevy Geo Prism requires repairs estimated at $3,000
to make it roadworthy again. His friend, Elaine, suggested that he should
buy a 5-year-old Honda Civic instead for $3000 cash. Elaine estimated the
following costs for the two cars:
b. What should Jerry do? What is his savings in the first year?
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2. Operating budgets include all of the following, EXCEPT:
a. Sales plan
b. Purchasing plan
c. Production plan
d. Cash flow plan
3. A demand forecast is
a. An estimate of sales demand given a product price
b. Developed largely because of customer dissatisfaction
c. An estimate of market demand given the amount sold the previous year
d. An estimate for the demand for labor
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7. Although planners update or revise the budgets during the period,
____________ is typically performed once per year
a. Zero-based budgeting
b. Periodic budgeting
c. Incremental budgeting
d. Continuous budgeting
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11. Amigo Corporation developed the following sales budget:
Month Sales
July $ 30,000
August 34,000
September 38,000
October 42,000
November 48,000
December 60,000
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12. The Mahoney Company has prepared a sales budget of 24,000 units
for a 3-month period starting from January 1. The company has an inventory
of 11,000 units of finished goods on hand at December 31 and has a target
finished goods inventory of 13,000 units at the end of the succeeding
quarter.
FG (Units)
Budgeted sales 24,000
Add target ending FG inventory 13,000
Total requirements 37,000
Deduct beginning FG inventory 11,000
Units to be produced 26,000
DM (Gallons)
DM needed for production (26,000 x 5) 130,000
Add target ending DM inventory 100,000
Total requirements 230,000
Deduct beginning DM inventory 110,000
DM to be purchased 120,000
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Chapter 12: Variance Analysis
During the second quarter, the company made 1,500 curtains and used
14,000 square yards of fabric costing $68,600. Direct labor totaled 7,600
hours for $79,800.
a. Compute the direct materials price and efficiency variances for the
quarter.
b. Compute the direct labor price and efficiency variances for the
quarter.
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2. Robb Industries Inc. (RII) developed standard costs for direct material
and direct labor. In 2004, RII estimated the following standard costs for one
of their major products, the 10-gallon plastic container.
During June RII produced and sold 5,000 containers using 490 pounds of
direct materials at an average cost per pound of $32 and 250 direct
manufacturing labor-hours at an average wage of $15.25 per hour.
a. Calculate the direct materials price and usage variances for June.
b. Calculate the direct labor rate and efficiency variances for June.
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