80.2K

Verified Solution

Link Copied!

Assume that a company manufactures numerous component parts, one of which is called Part A. The company's absorption costing system indicates that it costs $23.00 to make one unit of Part A as shown below: Direct materials Direct labor Variable overhead Fixed overhead Total absorption cost per unit $ 10.00 6.00 2.00 5.00 $ 23.00 The company is trying to decide between two alternatives: Alternative 1: Continue making 80,000 units of Part A per year using its existing equipment at the unit cost shown above. The equipment used to make this part does not wear out through use and it has no resale value. Alternative 2: Replace the existing equipment with a new piece of equipment that the company would rent for $148,500 per year. The new piece of equipment would be used to make 80,000 units per year and it would reduce Part A's direct labor cost per unit by 20% and its variable overhead per unit by 30%. The direct materials cost per unit will remain constant. What is the financial advantage or (disadvantage) of renting the new piece of equipment? Multiple Choice $(7.880) $(1940) $(4,500) $(3,940) Assume that a company manufactures and sells a variety of products, one of which it refers to as Product A. The company is considering dropping Product A because the income statement for this product is reporting a net operating loss as shown below: Sales $ 500,000 Variable expenses: Variable manufacturing expenses $ 240,000 Sales commissions 75,000 Shipping 25,000 Total variable expenses 340,000 Contribution margin 160,000 Fixed expenses : Salary of product-line manager $ 65,000 Advertising for this product 35,000 General factory overhead 25,000 Depreciation on equipment 20,000 Insurance on this product's inventories 8,000 Purchasing department 15,000 Total fixed expenses 168,000 Net operating loss $ (8,000) If Product A is dropped, the company would transfer its product-line manager to another department and discontinue a search for a new manager that the company anticipated paying a salary of $50,000. The general factory overhead and purchasing department expenses are common costs that the company allocates to all of its products using total celor dollar artha llentian hac Thanmantrinnalta mani Dr Awan natin it thrrein and purchasing department expenses are common costs that the company allocates to all of its products using total sales dollars as the allocation base. The equipment used to manufacture Product A does not wear out through use and it has no resale value. What is the financial advantage (disadvantage) of dropping Product A? Multiple Choice $8,000 $(47,000) $(27,000) $(67,000) Assume a company is considering buying 10,000 units of a component part rather than making them. A supplier has agreed to sell the company 10,000 units for a price of $40 per unit. The company's accounting system reports the following costs of making the part: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost Per Unit $ 18 12 2 8 4 $ 44 10,000 Units per Year $ 180,000 120,000 20,000 80,000 40,000 $ 440,000 One-half of the traceable fixed manufacturing overhead relates to supervisory salaries and the remainder relates to depreciation of equipment with no salvage value. If the company chooses to buy this component part from a supplier, then the supervisor who oversees its production would be discharged. If the company begins buying the part from a supplier, it can use freed up capacity to produce and sell 2,150 more units of another product that earns a contribution margin per unit of $8.00. What is the financial advantage (disadvantage) of buying 10,000 units from the supplier? Multiple Choice $(32,150) $(60,000) $(2,800) $(22,800) Assume that a company manufactures numerous component parts, one of which is called Part A. The company makes 50,000 units of Part A per year and its absorption costing system indicates that at this volume of production, it costs $23.00 per unit to make this part: Direct materials Direct labor Variable overhead Fixed overhead Total absorption cost per unit $ 10.00 6.00 2.00 5.00 $ 23.00 The company is trying to decide between two alternatives: Alternative 1: Continue making 50,000 units of Part A annually using its existing equipment at the unit cost shown above. The equipment used to make this part does not wear out through use and it has no resale value. Alternative 2: Purchase 50,000 units of Part A from a supplier at a cost of $18.91 per unit. If the company chooses alternative 2, it believes that $180,000 of the fixed manufacturing overhead cost being allocated to Part A will continue to be incurred. What is the financial advantage or (disadvantage) of buying the parts from a supplier? Multiple Choice $130,000 $(24,500) $24,500 $(130,000)

Answer & Explanation Solved by verified expert

See Answer