1.
A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. The company's choice of the denominator
level of activity affects the Variable component of the predetermined overhead rate.
True
False
2.
The budget variance represents the difference between the actual fixed manufacturing overhead cost
incurred during a period and the budgeted fixed manufacturing overhead cost.
True
False
3.
A volume variance and an efficiency variance are computed for fixed manufacturing overhead costs.
True
False
4.
At the end of the year, actual manufacturing overhead costs were $210,000 and applied manufacturing overhead
costs were $146,400. If the denominator activity for the year was 20,000 machine-hours, and if 24,000 standard
machine-hours were allowed for the year's production, the predetermined overhead rate per machine-hour was:
(Round your answer to 2 decimal places.)
$6.65
$6.10
$9.00
$9.50
5.
Tidd Corporation makes a product with the following standard costs:
Standard Quantity or
Standard Price or
Standard Cost
Hours
Rate
Per Unit
Inputs
Direct materials
4.5 grams
$5.00 per gram
$22.50
Direct labor
0.7 hours
$11.00 per hour
$7.70
Variable overhead
0.7 hours
$5.00 per hour
$3.50
The company reported the following results concerning this product in November.
Originally budgeted output
9,600
units
Actual output
9,700
units
Raw materials used in production
44,800
grams
Purchases of raw materials
47,290
grams
Actual direct labor-hours
7,860
Actual cost of raw materials purchases
$132,430
Actual direct labor cost
$125,123
Actual variable overhead cost
hours
$29,896
The company applies variable overhead on the basis of direct labor-hours. The direct materials price variance is
computed when the materials are purchased.
The variable overhead efficiency variance for November is:
$5,350 U
$5,350 F
$6,099 F
$6,099 U
6.
Franklin Glass Works uses a standard cost system in which manufacturing overhead is applied on the basis of
standard direct labor-hours. Each unit requires three standard hours of direct labor for completion. The
denominator activity for the year was based on budgeted production of 230,000 units. Total overhead was
budgeted at $930,000 for the year, and the fixed manufacturing overhead rate was $1.20 per direct labor-hour.
The actual data pertaining to the manufacturing overhead for the year are presented below:
Actual production
228,000
units
Actual direct labor-hours
470,000
direct labor-hours
Actual variable manufacturing overhead
$382,000
Actual fixed manufacturing overhead
$578,000
The standard hours allowed for actual production for the year total:
684,000
224,100
495,000
690,000
7.
The Wright Company has a standard costing system. The following data are available for September:
Actual quantity of direct materials purchased
60,000
pounds
Standard price of direct materials
$
per pound
Material price variance
$6,000
8
unfavorable
The actual price per pound of direct materials purchased in September is: (Round your answer to 2 decimal places.)
$8.00
$7.88
$8.12
$8.10
8.
Hurren Corporation makes a product with the following standard costs:
Standard Quantity or
Standard Price or
Standard Cost
Hours
Rate
Per Unit
Direct materials
3.5 grams
$7.00 per gram
$24.50
Direct labor
0.7 hours
$10.00 per hour
$7.00
Variable overhead
0.7 hours
$7.00 per hour
$4.90
Inputs
The company reported the following results concerning this product in June.
Originally budgeted output
8,400
units
Actual output
8,300
units
28,290
grams
5,500
hours
30,900
grams
Raw materials used in production
Actual direct labor-hours
Purchases of raw materials
Actual price of raw materials purchased
Actual direct labor rate
Actual variable overhead rate
$7.10
per gram
$10.90
per hour
$6.70
per hour
The company applies variable overhead on the basis of direct labor-hours. The direct materials price variance is
computed when the materials are purchased.
The labor rate variance for June is: (Round your intermediate calculations to 2 decimal places.)
$5,229 F
$5,229 U
$4,950 U
$4,950 F
9.
The Geurtz Company uses standard costing. The company makes and sells a single product called a Roff. The
following data are for the month of August:
• Actual cost of direct material purchased and used: $151,040
• Material price variance: $9,440 unfavorable
• Total materials variance: $36,440 unfavorable
• Standard cost per pound of material: $6
• Standard cost per direct labor-hour: $6
• Actual direct labor-hours: 14,580 hours
• Labor efficiency variance: $4,200 favorable
• Standard number of direct labor-hours per unit of Roff: 4 hours
• Total labor variance: $1,632 unfavorable
The actual direct labor rate per hour was:
$6.40
$6.40
$24.00
$6.00
10. Nutall Corporation is considering dropping product N28X. Data from the company's accounting system appear
below:
Sales
$760,000
Variable expense
$ 351,000
Fixed manufacturing expenses
$ 259,000
Fixed selling and administrative expense
$ 207,000
All fixed expenses of the company are fully allocated to products in the company's accounting system. Further
investigation has revealed that $200,500 of the fixed manufacturing expenses and $115,500 of the fixed selling and
administrative expenses are avoidable if product N28X is discontinued.
Required:
a.
According to the company's accounting system, what is the net operating income earned by product N28X?
(Input the amount as a positive value. Omit the "$" sign in your response.)
Net operating income/Net
operating loss
$
b-1. What would be the effect on the company's overall net operating income of dropping product N28X? (Input the
amount as a positive value. Omit the "$" sign in your response.)
Net operating income would be by (increase/ decrease)$
b-2. Should the product be dropped?
Yes
No
.
11. Costs associated with two alternatives, code-named Q and R, being considered by Corniel Corporation are listed
below:
Alternative Q
Alternative R
Supplies costs
$ 61,000
$ 47,000
Power costs
$ 28,000
$ 28,000
Inspection costs
$ 12,000
$ 22,000
Assembly costs
$ 21,000
$ 12,000
Required:
a. Which costs are relevant and which are not relevant in the choice between these two alternatives?
Supplies costs
(relevant/not relevant)
Power costs
(relevant/not relevant)
Inspection costs
(relevant/not relevant)
Assembly costs
(relevant/not relevant)
b. What is the differential cost of Alternative R over Alternative Q? (Negative amount should be indicated by a
minus sign. Omit the "$" signs in your response.)
Differential cost
$
12. Block Corporation makes three products that use the current constraint, which is a particular type of machine.
Data concerning those products appear below:
FX
JR
ZZ
Selling price per unit
$ 326.23
$ 543.49
$ 503.00
Variable cost per unit
$ 251.99
$ 420.80
$ 397.65
3.40
7.40
8.00
Time on the constraint (minutes)
Required:
a. Rank the products in order of their current profitability from the most profitable to the least profitable (Most
profitable = 1, Least profitable = 3) (Round your intermediate calculations to 2 decimal places.)
Ranking
FX
(1/2/3)
JR
(1/2/3)
ZZ
(1/2/3)
b. Assume that sufficient constraint time is available to satisfy demand for all but the least profitable product. Up to
how much should the company be willing to pay to acquire more of the constrained resource? (Round your
intermediate calculations and final answer to 2 decimal places. Omit the "$" sign in your response.)
Maximum amount
$
13. Silmon Corporation makes a product with the following standard costs:
Standard Quantity
Standard Price
or Hours
or Rate
Inputs
Direct materials
6.1 grams
$ 7.00 per gram
Direct labor
0.4 hours
$ 14.00 per hour
Variable overhead
0.4 hours
$ 2.00 per hour
In June the company produced 5,400 units using 34,190 grams of the direct material and 2,700 direct labor-hours.
During the month the company purchased 25,300 grams of the direct material at a price of $6.80 per gram. The actual
direct labor rate was $14.60 per hour and the actual variable overhead rate was $1.90 per hour. The materials price
variance is computed when materials are purchased. Variable overhead is applied on the basis of direct labor-hours.
Required:
Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price
variance for materials is recognized at point of purchase: (Input all amounts as positive values. Do not round
intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect
of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero
variance). Omit the "$" sign in your response.)
a. Direct materials quantity variance
$
(F/U/None)
b. Direct materials price variance
$
(F/U/None)
c. Direct labor efficiency variance
$
(F/U/None)
e. Direct labor rate variance
$
(F/U/None)
d. Variable overhead efficiency variance
$
(F/U/None)
f. Variable overhead rate variance
$
(F/U/None)
14. Portland Company's Ironton Plant produces precast ingots for industrial use. Carlos Santiago, who was recently
appointed general manager of the Ironton Plant, has just been handed the plant’s contribution format income
statement for October. The statement is shown below:
Budgeted
Actual
Sales (7,000
$
310,000
$
310,000
ingots)
Variable
expenses:
Variable cost
110,810
131,685
25,000
25,000
135,810
156,685
174,190
153,315
66,000
66,000
91,000
91,000
157,000
157,000
of goods sold*
Variable
selling expenses
Total variable
expenses
Contribution
margin
Fixed expenses:
Manufacturing
overhead
Selling and
administrative
Total fixed
expenses
Net operating
$
17,190
$
income (loss)
*Contains direct materials, direct labor, and variable manufacturing overhead.
(3,685)
Mr. Santiago was shocked to see the loss for the month, particularly because sales were exactly as budgeted. He
stated, "I sure hope the plant has a standard cost system in operation. If it doesn't, I won't have the slightest idea of
where to start looking for the problem."
The plant does use a standard cost system, with the following standard variable cost per ingot:
Standard
Standard Price
Quantity or
Standard Cost
or Rate
Hours
2.70 per
Direct materials
4.1 pounds $
$
11.07
pound
Direct labor
0.4 hours
$8.20 per hour
3.28
0.4 hours*
$3.70 per hour
1.48
Variable manufacturing
overhead
Total standard variable cost
$
15.83
*Based on machine-hours.
During October the plant produced 7,000 ingots and incurred the following costs:
a. Purchased 33,700 pounds of materials at a cost of $3.15 per pound. There were no raw materials in inventory at the
beginning of the month.
b. Used 28,500 pounds of materials in production. (Finished goods and work in process inventories are insignificant
and can be ignored.)
c. Worked 3,400 direct labor-hours at a cost of $7.90 per hour.
d. Incurred a total variable manufacturing overhead cost of $12,710 for the month. A total of 3,100 machine-hours
was recorded.
It is the company’s policy to close all variances to cost of goods sold on a monthly basis.
Required:
1. Compute the following variances for October:
a. Direct materials price and quantity variances. (Input all amounts as positive values. Leave no cells blank be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for
favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in
your response.)
Materials price variance
$
(U/F/None)
Materials quantity variance
$
(U/F/None)
b. Direct labor rate and efficiency variances. (Input all amounts as positive values. Leave no cells blank - be
certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for
favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in
your response.)
Labor rate variance
$
(U/F/None)
Labor efficiency variance
$
(U/F/None)
c. Variable overhead rate and efficiency variances. (Input all amounts as positive values. Do not round your
intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required. Indicate
the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no
effect (i.e., zero variance). Omit the "$" sign in your response.)
Variable overhead rate variance
$
(U/F/None)
Variable overhead efficiency variance
$
(U/F/None)
2a. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable
variance for October. (Input the amount as a positive value. Leave no cells blank - be certain to enter "0"
wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for
unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)
Net variance
(U/F/None)
$
3. Pick out the two most significant variances that you computed in (1) above. (You may select more than one
answer. Single click the box with the question mark to produce a check mark for a correct answer and
double click the box with the question mark to empty the box for a wrong answer.)
Materials price variance
Labor efficiency variance
Variable overhead efficiency variance
Labor rate variance
Variable overhead rate variance
Materials quantity variance
15. Barberry, Inc., manufactures a product called Fruta. The company uses a standard cost system and has
established the following standards for one unit of Fruta:
Standard
Standard Price
Quantity
or Rate
Standard Cost
Direct materials
per
1.6 pounds $ 5.60
pound
Direct labor
0.5 hours
$
8.96
per
$11.70
5.85
hour
Variable manufacturing overhead 0.5 hours
per
$ 2.40
hour
1.20
$
16.01
During June, the company recorded this activity related to production of Fruta:
a. The company produced 4,700 units during June.
b. A total of 12,640 pounds of material were purchased at a cost of $66,992.
c. There was no beginning inventory of materials; however, at the end of the month, 2,300 pounds of material
remained in ending inventory.
d. The company employs 10 persons to work on the production of Fruta. During June, they worked an average of 185
hours at an average rate of $12.30 per hour.
e. Variable manufacturing overhead is assigned to Fruta on the basis of direct labor-hours. Variable manufacturing
overhead costs during June totaled $3,700.
The company's management is anxious to determine the efficiency of Fruta production activities.
Required:
1. For direct materials:
a. Compute the price and quantity variances. (Input all amounts as positive values. Do not round
intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required. Indicate
the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no
effect (i.e., zero variance). Omit the "$" sign in your response.)
Materials price variance
$
(U/F/None)
Materials quantity variance
$
(U/F/None)
b. The materials were purchased from a new supplier who is anxious to enter into a long term purchase contract.
Would you recommend that the company sign the contract?
Yes
No
2. For labor employed in the production of Fruta:
a. Compute the rate and efficiency variances. (Input all amounts as positive values. Leave no cells blank - be
certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for
favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in
your response.)
Labor rate variance
$
(U/F/None)
Labor efficiency variance
(U/F/None)
$
b. In the past, the 10 persons employed in the production of Fruta consisted of 4 senior workers and 6 assistants.
During June, the company experimented with 5 senior workers and 5 assistants. Would you recommend that
the new labor mix be continued?
Yes
No
3a. Compute the variable overhead rate and efficiency variances. (Input all amounts as positive values. Do not
round intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required.
Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for
no effect (i.e., zero variance). Omit the "$" sign in your response.)
Variable overhead rate variance
$
(U/F/None)
Variable overhead efficiency variance
$
(U/F/None)
16. “It certainly is nice to see that small variance on the income statement after all the trouble we’ve had lately in
controlling manufacturing costs,” said Linda White, vice president of Molina Company. “The $36,150 overall
manufacturing variance reported last period is well below the 4% limit we have set for variances. We need to
congratulate everybody on a job well done.”
The company produces and sells a single product. The standard cost card for the product follows:
Standard Cost Card—Per Unit
Direct materials, 3.50 yards at $3.20 per yard
$
11.20
Direct labor, 2.7 direct labor-hours at $10.00 per direct
27.00
labor-hour
Variable overhead, 2.7 direct labor-hours at $2.60 per
7.02
direct labor-hour
Fixed overhead, 2.7 direct-labor hours at $5.00 per direct
13.50
labor-hour
Standard cost per unit
$
58.72
The following additional information is available for the year just completed:
a. The company manufactured 30,000
units of product during the year.
b. A total of 103,000 yards of material was purchased during the year at a cost of $3.45 per yard. All of this material
was used to manufacture the 30,000 units. There were no beginning or ending inventories for the year.
c. The company worked 83,000 direct labor-hours during the year at a cost of $9.90 per hour.
d. Overhead cost is applied to products on the basis of standard direct labor-hours. Data relating to manufacturing
overhead costs follow:
Denominator activity level (direct labor-hours)
80,000
Budgeted fixed overhead costs
$ 400,000
Actual fixed overhead costs
$ 396,600
Actual variable overhead costs
$ 224,100
Required:
1. Compute the direct materials price and quantity variances for the year. (Input all amounts as positive values.
Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by
selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the
"$" sign in your response.)
Direct materials quantity variance
$
(U/F/None)
Direct materials price variance
$
(U/F/None)
2. Compute the direct labor rate and efficiency variances for the year. (Input all amounts as positive values. Leave
no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting
"F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in
your response.)
Direct labor efficiency variance
$
(U/F/None)
Direct labor rate variance
$
(U/F/None)
3. For manufacturing overhead, compute the following:
a. The variable overhead rate and efficiency variances for the year. (Input all amounts as positive values. Leave
no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting
"F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in
your response.)
Efficiency variance
$
(U/F/None)
Rate variance
$
(U/F/None)
b. The fixed overhead budget and volume variances for the year. (Input all amounts as positive values. Leave no
cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting
"F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in
your response.)
Volume variance
$
(U/F/None)
Budget variance
$
(U/F/None)
17. Sport Luggage Inc. makes high-end hard-sided luggage for sports equipment. Data concerning three of the
company’s most popular models appear below.
Ski
Golf
Fishing
Vault
Caddy
Quiver
Selling price per unit
$250
$320
$ 235
Variable cost per unit
$110
$200
$135
Plastic injection molding machine processing
required to produce one unit
time
13
minutes 11 minutes 5 minutes
14
Pounds of plastic pellets per unit
7 pounds 6 pounds
pounds
Required:
1a. The total time available on the plastic injection molding machine is the constraint in the production process.
What is contribution margin per unit of the constrained resources for Ski Vault, Golf Caddy and Fishing Quiver?
(Round your answers to 2 decimal places. Omit the "$" sign in your response.)
Ski Vault
Contribution margin
$
Golf Caddy
per minute
$
Fishing Quiver
per minute
$
per minute
1b. Which product would be the most profitable use of this constraint?
Fishing Quiver
Ski Vault
Golf Caddy
1c. Which product would be the least profitable use of this constraint?
Fishing Quiver
Ski Vault
Golf Caddy
2a. A severe shortage of plastic pellets has required the company to cut back its production so much that the plastic
injection molding machine is no longer the bottleneck. Instead, the constraint is the total available pounds of
plastic pellets. What is contribution margin per unit of the constrained resources for Ski Vault, Golf Caddy and
Fishing Quiver? (Round your answers to 2 decimal places. Omit the "$" sign in your response.)
Ski Vault
Contribution margin
$
Golf Caddy
per pound
Fishing Quiver
per pound
$
$
per pound
2b. Which product would be the most profitable use of this constraint?
Golf Caddy
Ski Vault
Fishing Quiver
2c. Which product would be the least profitable use of this constraint?
Golf Caddy
Ski Vault
Fishing Quiver
3. Which product has the largest unit contribution margin?
Ski Vault
Fishing Quiver
Golf Caddy
18. Georgian Ambience Ltd. makes fine colonial reproduction furniture. Upholstered furniture is one of its major
product lines and the bottleneck on this production line is time in the upholstery shop. Upholstering is a craft that
takes years of experience to master and the demand for upholstered furniture far exceeds the company’s capacity
in the upholstering shop. Information concerning three of the company’s upholstered chairs appears below:
Chippendale
Selling price per unit
Gainsborough
Leather
Fabric
Armchair
Library Chair
Armchair
$ 1,328
$ 1,915
$ 1,550
Variable cost per unit
Upholstery shop time required to produce one unit
$ 800
$ 1,200
$ 1,100
8 hours
13 hours
5 hours
Required:
1. More time could be made available in the upholstery shop by asking the employees who work in this shop to work
overtime. Assuming that this extra time would be used to produce Leather Library Chairs, up to how much should
the company be willing to pay per hour to keep the upholstery shop open after normal working hours? (Omit the
"$" sign in your response.)
Maximum amount payable per hour
$
2. A small nearby upholstering company has offered to upholster furniture for Georgian Ambience at a fixed charge
of $52 per hour. The management of Georgian Ambience is confident that this upholstering company’s work is
high quality and their craftsmen should be able to work about as quickly as Georgian Ambience’s own craftsmen
on the simpler upholstering jobs such as the Chippendale Fabric Armchair.
a. Should management accept this offer?
Yes
No
19. Glade Company produces a single product. The costs of producing and selling a single unit of this product at the
company’s current activity level of 8,400 units per month are:
Direct materials
$ 1.90
Direct labor
$ 3.00
Variable manufacturing overhead
$ .80
Fixed manufacturing overhead
$ 4.35
Variable selling and administrative expenses
$ 1.00
Fixed selling and administrative expenses
$ 2.00
The normal selling price is $21 per unit. The company’s capacity is 11,100 units per month. An order has been
received from a potential customer overseas for 2,700 units at a price of $18.00 per unit. This order would not affect
regular sales.
Required:
1. If the order is accepted, by how much will monthly profits increase or decrease? (The order would not change the
company’s total fixed costs.) (Input the amount as a positive value. Omit the "$" sign in your response.)
Monthly profits would (increase or decrease) by
$
2. Assume the company has 500 units of this product left over from last year that are inferior to the current model.
The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a
minimum selling price for these units? (Round your answer to 2 decimal places. Omit the "$" sign in your
response.)
Relevant cost per unit
$
20. Pietarsaari Oy, a Finnish company, produces cross-country ski poles that it sells for €34 a pair. (The Finnish unit
of currency, the euro, is denoted by €.) Operating at capacity, the company can produce 51,000 pairs of ski poles
a year. Costs associated with this level of production and sales are given below:
Per Pair
Direct
€
Total
12
€
612,000
materials
Direct labor
4
204,000
1
51,000
4
204,000
1
51,000
4
204,000
Variable
manufacturin
g overhead
Fixed
manufacturin
g overhead
Variable
selling
expense
Fixed selling
expense
Total cost
€
€
26
1,326,000
Required:
1. The Finnish army would like to make a one-time-only purchase of 9,200 pairs of ski poles for its mountain troops.
The army would pay a fixed fee of €5 per pair, and in addition it would reimburse the Pietarsaari Oy company for
its unit manufacturing costs (both fixed and variable). Due to a recession, the company would otherwise produce
and sell only 41,800 pairs of ski poles this year. (Total fixed manufacturing overhead cost would be the same
whether 41,800 pairs or 51,000 pairs of ski poles were produced.) The company would not incur its usual variable
selling expenses with this special order.
If the Pietarsaari Oy company accepts the army’s offer, by how much would net operating income increase or
decrease from what it would be if only 41,800 pairs of ski poles were produced and sold during the year? (Input
the amount as a positive value. Omit the "€" sign in your response.)
(Decrease or increase) in net operating income
€
2. Assume the same situation as described in (1) above, except that the company is already operating at capacity and
could sell 51,000 pairs of ski poles through regular channels. Thus, accepting the army’s offer would require
giving up sales of 9,200 pairs at the normal price of €34 a pair. If the army’s offer is accepted, by how much will
net operating income increase or decrease from what it would be if the 9,200 pairs were sold through regular
channels? (Input the amount as a positive value. Omit the "€" sign in your response.)
(Decrease or increase) in net operating income
€
21. Barker Company has a single product called a Zet. The company normally produces and sells 84,000 Zets each
year at a selling price of $42 per unit. The company’s unit costs at this level of activity are given below:
Direct materials
$
8.50
Direct labor
9.00
Variable manufacturing overhead
4.80
Fixed manufacturing overhead
9.00 ($756,000 total)
Variable selling expenses
3.70
Fixed selling expenses
5.50 ($462,000 total)
Total cost per unit
$
40.50
A number of questions relating to the production and sale of Zets are given below. Each question is
independent.
Required:
1. Assume that Barker Company has sufficient capacity to produce 117,600 Zets each year without any increase in
fixed manufacturing overhead costs. The company could increase sales by 40% above the present 84,000 units
each year if it were willing to increase the fixed selling expenses by $120,000.
a. Calculate the incremental net operating income (Negative amount should be indicated with a minus sign. Do
not round intermediate calculations. Omit the "$" sign in your response.)
Incremental net operating income
$
b. Would the increased fixed selling expenses be justified?
No
Yes
2. Assume again that Barker Company has sufficient capacity to produce 117,600 Zets each year. The company has
an opportunity to sell 33,600 units in an overseas market. Import duties, foreign permits, and other special costs
associated with the order would total $20,160. The only selling costs that would be associated with the order
would be $1.50 per unit shipping cost. Compute the per unit break-even price on this order. (Do not round
intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Break-even price per unit
$
3. One of the materials used in the production of Zets is obtained from a foreign supplier. Civil unrest in the
supplier’s country has caused a cutoff in material shipments that is expected to last for three months. Barker
Company has enough material on hand to operate at 25% of normal levels for the three-month period. As an
alternative, the company could close the plant down entirely for the three months. Closing the plant would reduce
fixed manufacturing overhead costs by 35% during the three-month period and the fixed selling expenses would
continue at two-thirds of their normal level. What would be the impact on profits of closing the plant for the
three-month period? (Input the amount as a positive value. Round your intermediate calculations of units
produced and sold to the nearest whole number. Do not round your other intermediate calculations. Omit
the "$" sign in your response.)
Net (advantage/disadvantage) of closing the plant
$
4. The company has 500 Zets on hand that were produced last month and have small blemishes. Due to the
blemishes, it will be impossible to sell these units at the normal price. If the company wishes to sell them through
regular distribution channels, what unit cost figure is relevant for setting a minimum selling price? (Round your
answer to 2 decimal places. Omit the "$" sign in your response.)
Relevant unit cost
$
5. An outside manufacturer has offered to produce Zets and ship them directly to Barker’s customers. If Barker
Company accepts this offer, the facilities that it uses to produce Zets would be idle; however, fixed manufacturing
overhead costs would continue at 30%. Because the outside manufacturer would pay for all shipping costs, the
variable selling expenses would be reduced by 60%. Compute the unit cost that is relevant for comparison to the
price quoted by the outside manufacturer. (Do not round intermediate calculations. Round your answer to 2
decimal places. Omit the "$" sign in your response.)
Total avoidable unit cost
$