5/13/2021 Quiz 7 - Relevant Costs: 2020F-01:MANAGERIAL ACCOUNTING

Quiz 7 - Relevant Costs

Due Oct 23, 2020 at 11pm Points 10 Questions 10
Available Oct 2, 2020 at 8am - Oct 23, 2020 at 11pm 22 days Time Limit None
Allowed Attempts 3

This quiz was locked Oct 23, 2020 at 11pm.

Attempt History
Attempt Time Score
KEPT Attempt 2 less than 1 minute 10 out of 10

LATEST Attempt 2 less than 1 minute 10 out of 10

Attempt 1 392 minutes 5 out of 10

Score for this attempt: 10 out of 10

Submitted Oct 21, 2020 at 3:11pm
This attempt took less than 1 minute.

Question 1 1 / 1 pts

Richardson Motors uses 10 units of Part No. T305 each month in the
production of large diesel engines. The cost to manufacture one unit of
T305 is presented below.

Direct Materials $2,000

Materials Handling
(20% of Direct Materials Cost) 400
Direct Labor 16,000
Manufacturing Overhead
(150% of Direct Labor) 24,000
Total Manufacturing Cost $42,400

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Materials handling, which is not included in manufacturing overhead,

represents the direct variable costs of the receiving department that are
applied to direct materials and purchased components on the basis of
their cost. Richardson's annual manufacturing overhead budget is one-
half variable and one-half fixed. Simpson Castings, one of Richardson's
reliable vendors, has offered to supply T305 at a unit price of $32,000. If
Richardson Motors purchases the ten T305 units from Simpson Castings,
the capacity Richardson used to manufacture these parts would be used
to manufacture another component that would generate $4,000 in
incremental contribution margin.

Should Richardson decide to purchase the parts from Simpson, the out-
of-pocket cost per unit of T305 would:

Increase $1,600.

Correct!
Decrease $2,400.

Decrease $10,400.

Increase $14,400

Question 2 1 / 1 pts

Axis Company produces 3 products on the same equipment. Demand has

grown and adequate capacity doesn't exist to meet the market demand
for all three. Axis has more equipment being installed, but capacity will not
increase for four months. In the meantime, Axis's management wants
help in deciding how to allocate its scarce capacity. The following
information is available:

Product A B C
Sales Revenue $20.00 $15.00 $12.50
Variable Costs 9.50 7.50 6.00
Allocated Fixed Costs (not 9.50 7.50 5.50
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separable)
Unit Profit $1.00 $0.00 $1.00
Minutes on Equipment 4 2 3

To maximize profits how should scarce capacity on equipment be used?

Produce only A and C since product B doesn't yield any profit.

Produce up to market demand for product A, which has the highest

contribution margin, then product B, and use any leftover capacity on
product C.

Use all capacity on product A since it maximizes sales revenue and

contribution margin.

Correct!
Produce up to market demand for product B, followed by product A, and
use any leftover capacity on product C.

Question 3 1 / 1 pts

(Not a repeat question). Worried about the company’s performance, Charles, the
President of Delta Grande Stores, reviewed the operating performance and found the
following:

Men’s Women’s Children’s Housewares

Clothing Clothing Clothing
Division Division Division

Sales $30 $40 $20 $10

Variable $10 $7 $18 $3

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Production Costs

Allocated Fixed $9 $12 $6 $3

Costs

Variable $2 $1 $3 $1
Marketing Costs

Assuming that all fixed costs are unavoidable, if the president eliminated the unprofitable
segments, what would be the operating profit for the company as a whole?

$20

Correct!
$26

$29

$10

Question 4 1 / 1 pts

(Not a repeat question.) Mike's Mountain Bikes manufactures part #822

for use in its bikes. The costs per unit for 20,000 units of the part are as
follows: direct material $9, direct labor $20, variable overhead $10, fixed
overhead $22. Kami Manufacturing wants to sell 20,000 units of the part
for $60 per unit. Mike's is only interested in buying the part from Kami if
the savings total $250,000. If the part is outsourced, Mike's will realize
savings of $12 per part for fixed overhead and will release space that
could be leased for additional revenue.

What is Mikes's relevant cost of manufacturing the part in this decision?

$61

$39

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$49

Correct!
$51

Question 5 1 / 1 pts

Rice Co. plans to discontinue a department with a $24,000 contribution to

overhead, and allocated overhead of $36,000, of which $10,000 cannot
be eliminated. What would be the effect of this discontinuance on Rice's
pretax profit?

Correct!
Increase of $2,000

Decrease of $24,000

Decrease of $2,000

Decrease of $14,000

Question 6 1 / 1 pts

Three Stars, Inc. manufactures prefabricated houses. The firm's

president is interested in determining whether it would be better to
manufacture the doors used in the houses or to buy them from a supplier.
A manufactured door costs $120 at the current volume of 500 doors, and
there is supplier who is willing to provide them for $48,000 in total. The
following is the internal breakdown of the $120 cost:

Direct materials, $35

Variable Labor, $50
Variable Overhead, $10
Administrative salaries, $7 (allocated corporate overhead)

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Property taxes, $2 (allocated corporate overhead)

Insurance, $5 (allocated corporate overhead)
Utilities, $5 (allocated plant overheads, mixed cost)
The remaining cost represents miscellaneous allocated plant fixed
overhead.

If the doors are outsourced, all corporate overheads are expected to

remain the same because the doors aren't a large enough component to
impact corporate costs. The plant manager has identified $4,000 of the
allocated plant overhead that could be saved if the doors are outsourced.
What is the net savings (cost) of outsourcing the doors?

Correct!
The company will save $3,500 in total if they outsource the doors.

The company will lose $500 in total if they outsource.

The company will save $500 in total if they outsource.

The company will lose $3,500 in total if they outsource the doors.

Question 7 1 / 1 pts

Which one of the following costs would be relevant in short-term decision

making?

Total variable costs that are the same in the considered alternatives.

Costs of fixed assets to be used in all of the alternatives.

All costs of inventory.

Correct! Severance costs for laid off workers.

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Question 8 1 / 1 pts

(Not a repeat question.) Condensed monthly operating income data for

Korbin Inc. for May follow:

Urban Suburban Total

Store Store
Sales $80,000 $120,000 $200,000
Variable costs 32,000 84,000 116,000
Contribution $48,000 $ 36,000 $84,000
margin Direct 20,000 40,000 60,000
fixed costs
Store segment $28,000 $ (4,000) $24,000
margin Common 4,000 6,000 10,000
fixed cost
Operating income $24,000 $(10,000) $14,000

Additional information regarding Korbin's operations follows:

One-fourth of each store's direct fixed costs will continue if either store
is closed.
Korbin allocates common fixed costs to each store on the basis of
sales dollars.
Management estimates that closing Suburban Store would result in a
10% decrease in Urban Store's sales, whereas closing Urban Store
would not affect Suburban Store's sales.
The operating results for May are representative of all months.
Korbin is considering a promotional campaign at Suburban Store that
would not affect Urban Store. Increasing monthly promotional expense at
Suburban Store by $4,000 in order to increase this store's sales by 15%
would result in a monthly increase (decrease) in Korbin's operating
income during May (rounded) of:

$(2,600).

Correct! $1,400.

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$5,400.

$14,000.

Question 9 1 / 1 pts

(Not a repeat question). Worried about the company’s performance, Charles, the
President of Delta Grande Stores, reviewed the operating performance and found the
following:

Men’s Women’s Children’s Housewares

Clothing Clothing Clothing
Division Division Division

Sales $30 $40 $20 $10

Variable $10 $7 $18 $3

Production Costs

Allocated Fixed $9 $12 $6 $3

Costs

Variable $2 $1 $3 $1
Marketing Costs

Assuming that all fixed costs are unavoidable, what action should the president consider
in order to maximize profit?

Eliminate both children's clothing and housewares.

Eliminate housewares and keep the other segments.

Correct!
Eliminate children's clothing and keep the other segments.

Continue with the status quo.

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Question 10 1 / 1 pts

A company produces and sells three products:

C J P
Sales $200,000 $150,000 $125,000
Separable 60,000 40,000 35,000
(product) fixed
costs
Allocated fixed 35,000 40,000 25,000
costs
Variable costs 95,000 75,000 50,000

The company lost its lease and must move to a smaller facility. As a
result, total allocated fixed costs will be reduced by 30%. However, one
product must be discontinued. The expected net income after the
appropriate product has been discontinued is:

$10,000

Correct!
$15,000

$20,000

$55,000

Quiz Score: 10 out of 10

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