25 May Question 126. How much profit (loss) does the company make by processing
Question
126. How much profit (loss) does the company make by processing the intermediate product beet juice into refined sugar rather than selling it as is?
A) $1
B) ($17)
C) $19
D) ($52)
127. Which of the intermediate products should be processed further?
A) beet fiber should be processed into industrial fiber; beet juice should be processed into refined sugar
B) beet fiber should NOT be processed into industrial fiber; beet juice should NOT be processed into refined sugar
C) beet fiber should NOT be processed into industrial fiber; beet juice should be processed into refined sugar
D) beet fiber should be processed into industrial fiber; beet juice should NOT be processed into refined sugar
Essay Questions
128. Saalfrank Corporation is considering two alternatives that are code-named M and N. Costs associated with the alternatives are listed below:
| Alternative M | Alternative N | ||
| Supplies costs……… | $43,000 | $53,000 | |
| Assembly costs…… | $43,000 | $56,000 | |
| Power costs………… | $26,000 | $26,000 | |
| Inspection costs….. | $19,000 | $26,000 |
Required:
a. Which costs are relevant and which are not relevant in the choice between these two alternatives?
b. What is the differential cost between the two alternatives?
129. Costs associated with two alternatives, code-named Q and R, being considered by Albiston Corporation are listed below:
| Alternative Q | Alternative R | ||
| Supplies costs……… | $65,000 | $65,000 | |
| Power costs………… | $30,000 | $29,000 | |
| Inspection costs….. | $18,000 | $29,000 | |
| Assembly costs…… | $33,000 | $33,000 |
Required:
a. Which costs are relevant and which are not relevant in the choice between these two alternatives?
b. What is the differential cost between the two alternatives?
130. The most recent monthly income statement for Benner Stores is given below:
| Total | Store A | Store B | ||
| Sales……………………………. | $1,000,000 | $400,000 | $600,000 | |
| Variable expenses………….. | 580,000 | 160,000 | 420,000 | |
| Contribution margin………. | 420,000 | 240,000 | 180,000 | |
| Traceable fixed expenses… | 300,000 | 100,000 | 200,000 | |
| Store segment margin…….. | 120,000 | 140,000 | (20,000) | |
| Common fixed expenses… | 50,000 | 20,000 | 30,000 | |
| Net operating income…….. | $ 70,000 | $120,000 | ($ 50,000) |
Due to its poor showing, consideration is being given to closing Store B. Studies show that if Store B is closed, one-fourth of its traceable fixed expenses will continue unchanged. The studies also show that closing Store B would result in a 10 percent decrease in sales in Store A. The company allocates common fixed expenses to the stores on the basis of sales dollars.
Required:
Compute the overall increase or decrease in the company’s operating income if Store B is closed.
131. Companies often allocate common fixed costs among segments. For example, common fixed corporate costs are often allocated to divisions and appear as part of the divisional performance reports.
Required:
What dangers are there in allocating common fixed costs to segments when involved in a decision to possibly drop a segment such as a product or a division?
132. The management of Schmader Corporation is considering dropping product M12C. Data from the company’s accounting system appear below:
| Sales……………………………………………………….. | $550,000 | |
| Variable expenses…………………………………….. | $242,000 | |
| Fixed manufacturing expenses…………………… | $215,000 | |
| Fixed selling and administrative expenses……. | $132,000 |
All fixed expenses of the company are fully allocated to products in the company’s accounting system. Further investigation has revealed that $137,000 of the fixed manufacturing expenses and $79,000 of the fixed selling and administrative expenses are avoidable if product M12C is discontinued.
Required:
a. What is the net operating income earned by product M12C according to the company’s accounting system? Show your work!
b. What would be the effect on the company’s overall net operating income of dropping product M12C? Should the product be dropped? Show your work!
133. Suire Corporation is considering dropping product D14E. Data from the company’s accounting system appear below:
| Sales……………………………………………………….. | $340,000 | |
| Variable expenses…………………………………….. | $156,000 | |
| Fixed manufacturing expenses…………………… | $116,000 | |
| Fixed selling and administrative expenses……. | $75,000 |
All fixed expenses of the company are fully allocated to products in the company’s accounting system. Further investigation has revealed that $72,000 of the fixed manufacturing expenses and $48,000 of the fixed selling and administrative expenses are avoidable if product D14E is discontinued.
Required:
a. According to the company’s accounting system, what is the net operating income earned by product D14E? Show your work!
b. What would be the effect on the company’s overall net operating income of dropping product D14E? Should the product be dropped? Show your work!
134. The management of Wengel Corporation is considering dropping product B90D. Data from the company’s accounting system appear below:
| Sales……………………………………………………….. | $720,000 | |
| Variable expenses…………………………………….. | $374,000 | |
| Fixed manufacturing expenses…………………… | $245,000 | |
| Fixed selling and administrative expenses……. | $209,000 |
All fixed expenses of the company are fully allocated to products in the company’s accounting system. Further investigat
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