Hurren corporation makes a product with the following standard costs

Managment Acc

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:

Inputs

Standard Quantity or Hours

Standard Price or Rate

Standard Cost Per Unit

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

hours

Actual cost of raw materials purchases

$132,430

Actual direct labor cost

$125,123

Actual variable overhead cost

$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

$ 8

per pound

Material price variance

$6,000

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:

Inputs

Standard Quantity or Hours

Standard Price or Rate

Standard Cost 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

The company reported the following results concerning this product in June.

Originally budgeted output

8,400

units

Actual output

8,300

units

Raw materials used in production

28,290

grams

Actual direct labor-hours

5,500

hours

Purchases of raw materials

30,900

grams

Actual price of raw materials purchased

$7.10

per gram

Actual direct labor rate

$10.90

per hour

Actual variable overhead rate

$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

Time on the constraint (minutes)

3.40

7.40

8.00

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:

Inputs

Standard Quantity or Hours

Standard Price or Rate

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 ingots)

$

310,000

$

310,000

Variable expenses:

Variable cost of goods sold*

110,810

131,685

Variable selling expenses

25,000

25,000

Total variable expenses

135,810

156,685

Contribution margin

174,190

153,315

Fixed expenses:

Manufacturing overhead

66,000

66,000

Selling and administrative

91,000

91,000

Total fixed expenses

157,000

157,000

Net operating income (loss)

$

17,190

$

(3,685)

*Contains direct materials, direct labor, and variable manufacturing overhead.

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 Quantity or Hours

Standard Price or Rate

Standard Cost

Direct materials

4.1 pounds

$

2.70 per pound

$

11.07

Direct labor

0.4 hours

$

8.20 per hour

3.28

Variable manufacturing overhead

0.4 hours*

$

3.70 per hour

1.48

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 Quantity

Standard Price or Rate

Standard Cost

Direct materials

1.6 pounds

$

5.60

per pound

$

8.96

Direct labor

0.5 hours

$

11.70

per hour

5.85

Variable manufacturing overhead

0.5 hours

$

2.40

per 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 labor-hour

27.00

Variable overhead, 2.7 direct labor-hours at $2.60 per direct labor-hour

7.02

Fixed overhead, 2.7 direct-labor hours at $5.00 per direct labor-hour

13.50

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 Vault

Golf Caddy

Fishing Quiver

Selling price per unit

$

250

$

320

$

235

Variable cost per unit

$

110

$

200

$

135

Plastic injection molding machine processing time required to produce one unit

13 minutes

11 minutes

5 minutes

Pounds of plastic pellets per unit

14 pounds

7 pounds

6 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

Golf Caddy

Fishing Quiver

Contribution margin

$

per minute

$

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

Golf Caddy

Fishing Quiver

Contribution margin

$

per pound

$

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:

Gainsborough Armchair

Leather Library Chair

Chippendale Fabric Armchair

Selling price per unit

$ 1,328

$ 1,915

$ 1,550

Variable cost per unit

$ 800

$ 1,200

$ 1,100

Upholstery shop time required to produce one unit

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

Total

Direct materials

€

12

€

612,000

Direct labor

4

204,000

Variable manufacturing overhead

1

51,000

Fixed manufacturing overhead

4

204,000

Variable selling expense

1

51,000

Fixed selling expense

4

204,000

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

$