29 Jun Question 1. Chapman Inc. has s
Question
1. Chapman Inc. has several outdated computers that cost a total of $8,600 and could be sold as scrap for $4,600. They could be updated for an additional $2,400 and sold. If Chapman updates the computers and sells them, net income will increase by $5,400. What amount would be considered sunk costs?
A) $5,400
B) $11,000
C) $8,600
D) $1,200
Sunk costs are the costs already incurred – so only the $8600 original cost is a sunk cost.
2. It costs Chapman Company $18.40 of variable and $3.75 of fixed costs to produce one bathroom scale, which normally sells for $47.00. A foreign wholesaler offers to purchase 4,000 scales at $26.90 each. Chapman would incur special shipping costs of $2.75 per scale if the order were accepted. Chapman has sufficient unused capacity to produce the 4,000 scales. If the special order is accepted, what will be the effect on net income?
A) $107,600 increase
B) $23,000 increase
C) $8,000 increase
D) $23,000 decrease
4000 scales x ($26.90 sale price – $18.40 variable cost – $3.75 fixed cost – $2.75 shipping) = 4000 x $2 = $8,000 increase to net income
6. Mesh Merchandising Company expects to purchase $86,000 of materials in July and $118,000 of materials in August. 21ree-quarters of all purchases are paid for in the month of purchase, and the other one-fourth are paid for in the month following the month of purchase. How much will August’s cash disbursements for materials purchases be?
A) $118,000
B) $64,500
C) $88,500
D) $110,000
July purchases paid in August = 25% x $86,000 = 21,500
+Aug. purchases paid in Aug. = 75% x 118,000 = 88,500
= $110,000
8. The following information is taken from the production budget for the first quarter:
Beginning inventory in units 883
Sales budgeted for the quarter 338,000
Capacity in units of production facility 350,000
How many finished goods units should be produced during the quarter if the company desires 2,100 units available to start the next quarter?
A) 339,217
B) 340,100
C) 351,217
D) 336,783
Budgeted sale 338,000 – beginning inventory 883 + desired ending inventory 2,100 = 339,217
9. Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered:
Old Machine New Machine
Price $300,000 $600,000
Accumulated Depreciation 90,000 -O-
Remaining useful life 10 years -O-
Useful life -0- 10 years
Animal operating costs $240,000 $180,600
If the old machine is replaced, it can be sold for $24,000.
The net advantage (disadvantage) of replacing the old machine is
A) $18,000
B) $(6,000)
C) $24,000
D) $(60,000)
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