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Exam 11: Differential Analysis: The Key to Decision Making

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Question 91

Multiple Choice

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The Cook Corporation has two divisions--East and West.The divisions have the following revenues and expenses: The management of Cook is considering the elimination of the West Division.If the West Division were eliminated, its traceable fixed costs could be avoided.Total common corporate costs would be unaffected by this decision.Given these data, the elimination of the West Division would result in an overall company net operating income (loss) of:

A) $15,000
B) $(155,000)
C) $(75,000)
D) $(60,000)

E) A) and B)
F) A) and C)

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Question 92

Multiple Choice

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The Freed Corporation produces three products, X, Y, Z, from a single raw material input.Product Y can be sold at the split-off point for total annual revenues of $50,000, or it can be processed further at a total annual cost of $16,000 and then sold for $68,000.Which of the following statements is true concerning Product Y?

A) Product Y should be sold at the split-off point rather than processed further.
B) The annual financial advantage from processing Product Y further is $18,000.
C) The annual financial advantage from processing Product Y further is $68,000.
D) The annual financial advantage from processing Product Y further is $2,000.

E) C) and D)
F) None of the above

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Question 93

Multiple Choice

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A study has been conducted to determine if one of the departments in Carry Corporation should be discontinued.The contribution margin in the department is $80,000 per year.Fixed expenses charged to the department are $95,000 per year.It is estimated that $50,000 of these fixed expenses could be eliminated if the department is discontinued.These data indicate that if the department is discontinued, the yearly financial advantage (disadvantage) for the company would be:

Assume that Tolar decides to upgrade the calculators.At what selling price per unit would the company be as well off as if it just sold the calculators in their present condition?

What would be the financial advantage (disadvantage) from dropping product D74F?

Eliminating nonproductive processing time is particularly important in a bottleneck operation.

Kneller Co.manufactures and sells medals for winners of athletic and other events.Its manufacturing plant has the capacity to produce 12,000 medals each month; current monthly production is 9,600 medals.The company normally charges $99 per medal.Cost data for the current level of production are shown below: The company has just received a special one-time order for 500 medals at $89 each.For this particular order, no variable selling and administrative costs would be incurred.This order would also have no effect on fixed costs.Assume that direct labor is a variable cost. Required: Should the company accept this special order? Why?

An automated turning machine is the current constraint at Jordison Corporation.Three products use this constrained resource.Data concerning those products appear below: Rank the products in order of their current profitability from most profitable to least profitable.In other words, rank the products in the order in which they should be emphasized.

If management decides to buy part Z43 from the outside supplier rather than to continue making the part, what would be the annual financial advantage (disadvantage) ?

When a company has a production constraint, total contribution margin will be maximized by emphasizing the products with the highest contribution margin per unit of the constrained resource.

Sunk costs are costs that have proven to be unproductive.

A product whose revenues do not cover its variable costs and its traceable fixed costs should usually be dropped.

Cybil Baunt just inherited a 1958 Chevy Impala from her late Aunt Joop.Aunt Joop purchased the car 40 years ago for $8,000.Cybil is either going to sell the car for $10,000 or have it restored and then sell it for $22,000.The restoration will cost $9,000.Cybil would be financially better off by:

Rank the products in order of their current profitability from most profitable to least profitable.In other words, rank the products in the order in which they should be emphasized.

According to the company's accounting system, what is the net operating income earned by product V86O? Include all costs in this calculation-whether relevant or not.

Future costs that do not differ between the alternatives in a decision are avoidable costs.

According to the company's accounting system, what is the net operating income earned by product D74F? Include all costs in this calculation-whether relevant or not.

A vertically integrated company is less dependent on its suppliers than a company that is not vertically integrated.

Assuming all other conditions stay the same, at what level of annual sales of Doombugs (in units) should Draper be indifferent between discontinuing Doombugs or continuing the production and sale of Doombugs?

Bowen Company produces products P, Q, and R from a joint production process.Each product may be sold at the split-off point or be processed further.Joint production costs of $81,000 per year are allocated to the products based on the relative number of units produced.Data for Bowen's operations for the current year are as follows: Product P can be processed beyond the split-off point for an additional cost of $10,000 and can then be sold for $50,000.Product Q can be processed beyond the split-off point for an additional cost of $35,000 and can then be sold for $65,000.Product R can be processed beyond the split-off point for an additional cost of $6,000 and can then be sold for $25,000. Required: Which products should be processed beyond the split-off point?