1
Gemini Company sells these two products:
Black
Red
Sales price
$30
$40
Variable costs
18
22
per unit
Time to produce
0.1 hours
0.2 hours
1 unit
Gemini is going to increase its capacity by 2,000 labor hours. To maximize profit, what should
Gemini use the additional hours to produce?
A. Additional capacity should always be divided equally among all products to maximize profit.
B. Production of Black will cause higher profit ($6,000 greater than Red).
C. Production of Black will cause higher profit ($60,000 greater than Red).
D. Production of Red will cause higher profit ($12,000 greater than Black).
2
Joann's Home Accessories line has sales of 20,000 units at $45 each with a contribution margin of
35%. Fixed costs are $200,000. What are the variable costs?
A. $115,000
B. $315,000
C. $585,000
D. $785,000
3
Joann's Home Accessories line has breakeven sales at 10,000 units at $50each with a contribution
margin of 35%. What are the fixed costs?
A. $175,000
B. $250,000
C. $325,000
D. $500,000
4
Thomas, Inc. estimates it will produce 1,200 homework machines during the next year with costs as
follows:
Direct materials
$200 per unit
Direct labor
$160 per unit
Fixed overhead (40% avoidable)
$300 per unit
An outside supplier has offered to produce the machines for Thomas for $700 a unit. What is the
incremental effect on profit for this make or buy decision?
A. Increase in profit of $24,000.
B. Decrease in profit of $24,000.
C. Increase in profit of $240,000.
D. Decrease in profit of $120,000.
5
Outdoor Sports is considering an offer from a customer who wants to buy 3,000 pairs of boots at
$28 a pair. The company normally sells 10,000 pairs of boots per month at $34 a pair. Variable
costs are $25 per pair and fixed costs total to $20,000. The company has excess capacity. What is
the effect on income if the offer from the customer is accepted?
A. Increase of $84,000.
B. Decrease of $11,000.
C. Increase of $9,000.
D. Increase of $79,000.
6
The following information is available for Morton Enterprises. How much is the incremental
profit if Morton selects alternative 2 instead of alternative 1?
Alternative 1
Alternative 2
Revenue
$120,000
$140,000
Cost
90,000
105,000
A. $65,000
B. $35,000
C. $20,000
D. $5,000
7
Management accounting includes all of the following types of financial and nonfinancial
information EXCEPT:
A.
B.
C.
D,
8
product costs.
debt owed to banks.
customer profitability.
quality information.
The decision to drop a major product line that is produced in large batches will likely
affect which of the following types of costs?
A. unit-related costs only
B unit-related and batch-related costs only
C. batch-related costs only
D. unit-related, batch-related, and product-sustaining costs