Question 1

HiTech wants to drop the Regular product line.If the line is dropped,company-wide fixed manufacturing costs would fall by 10% because there is no alternative use of the facilities.What would be the impact on operating income if Regular is discontinued?

Accepted Answer

If the Regular product line is discontinued, the company-wide fixed manufacturing costs would fall by 10%. However, the contribution margin from the Regular product line also needs to be considered. If the contribution margin from the Regular product line is less than 10% of the total company-wide contribution margin, then discontinuing the line would result in a decrease in operating income. On the other hand, if the contribution margin from the Regular product line is greater than 10% of the total company-wide contribution margin, then discontinuing the line would result in an increase in operating income. Therefore, we need more information to determine the impact on operating income. 
Since no information is given about the contribution margin, the only answer choice that reflects a possible decrease in operating income is D, assuming the contribution margin from the Regular product line is greater than 10% of the total company-wide contribution margin.

Question 2

The Shoe Department at the El Paso Department Store is being considered for closure.The following information relates to shoe activity: 
If 70% of the fixed operating costs are avoidable,should the Shoe Department be closed?

Accepted Answer

The answer of The Shoe Department at the El Paso...

Question 3

A firm that decides to emphasize those goods with the highest contribution margin per unit may have made an incorrect decision when the company:

Accepted Answer

If a firm has capacity constraints in the form of limited resources, emphasizing only on goods with the highest contribution margin per unit may lead to the underproduction of other goods with a lower contribution margin per unit but higher demand. This could result in lost sales and revenue, and thus an incorrect decision. Therefore, it is important for the firm to consider the demand and availability of resources before making a decision on which goods to emphasize.

Question 4

The amount of joint cost allocated to Nuts and Bolts,respectively,would be:

Accepted Answer

Using the Net Realizable Value (NRV) method:
Revenue:
Nuts: 80,000 + 120,000 = $200,000
Bolts: 120,000 + 160,000 = $280,000
Total Revenue = $480,000
Separable Costs:
Nuts: $80,000
Bolts: $120,000
Total Separable Costs = $200,000
Net Realizable Value:
Nuts: $200,000*(80,000/480,000) - $80,000 = $20,000
Bolts: $200,000*(400,000/480,000) - $120,000 = $80,000
Joint Costs:
$100,000
Allocating joint costs based on the proportion of NRV:
Nuts: ($20,000/($20,000+$80,000))*$100,000 = $20,000
Bolts: ($80,000/($20,000+$80,000))*$100,000 = $80,000
Therefore, the amount of joint cost allocated to Nuts and Bolts, respectively, would be $20,000 and $80,000, or $32,000 and $48,000 in total.

Question 5

Lido manufactures A and B from a joint process (cost = $80,000).Ten thousand pounds of B can be sold at split-off for $15 per pound or processed further at an additional cost of $20,000 and later sold for $16.If Lido decides to process B beyond the split-off point,operating income will:

Accepted Answer

The answer of Lido manufactures A and B from a...

Question 6

Fester Company is considering whether to sell Retox at the split-off point or subject it to further processing and produce a more refined product known as Retox-F.Consider the following items:
I.The selling price of Retox-F
II.The joint processing cost of Retox.
III.The separable cost of producing Retox-F.
Which of the above items is (are)relevant to Foster's decision to process Retox into Retox-F?

Accepted Answer

The selling price of Retox-F (I) is relevant as it will determine the potential revenue generated from the further processing of Retox. The separable cost of producing Retox-F (III) is also relevant as it will provide information on the additional costs incurred in the further processing of Retox. The joint processing cost of Retox (II) is not relevant as it is a sunk cost that has already been incurred and cannot be changed regardless of the decision to process Retox or not.

Question 7

The amount of joint cost allocated to Bolts would be:

Accepted Answer

The answer of The amount of joint cost allocated to...

Question 8

Lido manufactures A and B from a joint process (cost = $80,000).Five thousand pounds of A can be sold at split-off for $20 per pound or processed further at an additional cost of $20,000 and then sold for $25 per pound.If Lido decides to process A beyond the split-off point,operating income will:

Accepted Answer

The answer of Lido manufactures A and B from a...

Question 9

Occular is studying whether to drop a product because of ongoing losses.Costs that would be relevant in this situation would include variable manufacturing costs as well as:

Accepted Answer

The answer of Occular is studying whether to drop a...

Question 10

An architecture firm currently offers services that appeal to both individuals and commercial clients.If the firm decides to discontinue services to individuals because of ongoing losses,which of the following costs could the company likely avoid?

Accepted Answer

Variable operating costs are directly associated with the level of service provided. By discontinuing services to individuals, the firm can avoid costs that vary with the amount of service provided to this client group, such as materials, labor, and utilities directly tied to these projects. Fixed costs like general overhead, building depreciation, insurance, and installment payments on equipment would remain unchanged by the decision to discontinue services to individuals.

Question 11

Coastal Airlines has a significant presence at the San Jose International Airport and therefore operates the Emerald Club,which is across from gate 36 in terminal 1.The Emerald Club provides food and business services for the company's frequent flyers.Consider the following selected costs of Club operation:
1)Receptionist and supervisory salaries
2)Catering
3)Terminal depreciation (based on square footage)
4)Airport fees (computed as a percentage of club revenue)
5)Allocated Coastal administrative overhead
Management is exploring whether to close the club and expand the seating area for gate 36.Which of the preceding expenses would the airline classify as unavoidable?

Accepted Answer

Terminal depreciation (based on square footage) and the allocated Coastal administrative overhead costs are unavoidable as they are fixed costs that will be incurred regardless of whether the Emerald Club is closed or not. The other costs, receptionist and supervisory salaries, catering, and airport fees (computed as a percentage of club revenue) are variable costs that can potentially be avoided if the club is closed. Therefore, options A, B, and C are incorrect.

Question 12

Product costs incurred after the split-off point in a joint processing environment are termed:

Accepted Answer

Separable processing costs refer to the costs incurred after the split-off point in a joint processing environment. These costs are identifiable with specific products and can be allocated to them. Joint product costs refer to the costs incurred up to the split-off point, and are common to all the joint products that are produced. Non-relevant costs, scrap costs, and spoilage costs are not related to the question being asked.

Question 13

Product costs incurred before the split-off point in a joint processing environment are termed:

Accepted Answer

Joint product costs are the costs incurred before the split-off point in a joint processing environment. These costs are common to all products produced up to that point.

Question 14

Disregard the information in the previous question.If HiTech eliminates Regular and uses the available capacity to produce and sell an additional 1,500 units of Super,what would be the impact on operating income?

Accepted Answer

Eliminating Regular and producing an additional 1,500 units of Super would increase the revenue by 1,500 x $90 = $135,000 (since the selling price of Super is $90 per unit). The cost of producing these units would be 1,500 x $45 = $67,500 (since the variable cost of Super is $45 per unit). This would result in an increase in operating income of $135,000 - $67,500 = $67,500. However, we also need to consider the opportunity cost of not producing Regular, which is (2,000 x $20) = $40,000. Therefore, the net increase in operating income would be $67,500 - $40,000 = $27,500, which is closest to option C ($55,000 increase). Therefore, C is the best choice.

Question 15

The amount of joint cost allocated to Nuts would be:

Accepted Answer

The answer of The amount of joint cost allocated to...

Question 16

A company that is operating at full capacity should emphasize those products and services that have the:

Accepted Answer

When a company is operating at full capacity, it means that its scarce resources, such as production time or raw materials, are fully utilized. Therefore, the company should emphasize products or services that generate the highest contribution margin per unit of that scarce resource, as this will result in the highest profit per unit of scarce resource invested. Choices A, B, D, and E do not take into account the scarcity of resources, and may not lead to the most profitable outcome for a company operating at full capacity.

Question 17

When deciding whether to sell a product at the split-off point or process it further,joint costs are not usually relevant because:

Accepted Answer

Joint costs are sunk costs that have already been incurred and cannot be changed by the decision to sell at split-off or process further. Therefore, they should not be considered when making the decision. The relevant factors to be considered are the incremental revenues and costs associated with processing the product further.

Question 18

Ortega Interiors provides design services to residential and commercial clients.The residential services produce a contribution margin of $450,000 and have traceable fixed operating costs of $480,000.Management is studying whether to drop the residential operation.If closed,the fixed operating costs will fall by $370,000 and Ortega's income will:

Accepted Answer

The answer of Ortega Interiors provides design services to residential...

Question 19

Summers Corporation is composed of five divisions.Each division is allocated a share of Summers's overhead to make divisional managers aware of the cost of running the corporate headquarters.The following information relates to the Metro Division: 
If the Metro Division is closed,100% of the traceable fixed operating costs can be eliminated.What will be the impact on Summers's overall profitability if the Metro Division is closed?

Accepted Answer

The traceable fixed operating costs of the Metro Division are $500,000 ($100,000 + $75,000 + $175,000 + $150,000). If the Metro Division is closed, these costs will be eliminated, leading to a decrease in Summers Corporation's overall profitability by $500,000. None of the other options are correct as they do not consider the elimination of the traceable fixed operating costs of the Metro Division.

Question 20

Indiana Corporation has $200,000 of joint processing costs and is studying whether to process J and K beyond the split-off point.Information about J and K follows. 
If Indiana desires to maximize total company income,what should the firm do with regard to Products J and K?

Accepted Answer

The answer of Indiana Corporation has $200,000 of joint processing...

Quiz 14: Decision Making: Relevant Costs and Benefits