Question 21. The Jabba Company manufactures the “Snack Buster” which co

21. The Jabba Company manufactures the “Snack Buster” which consists of a wooden snack chip bowl with an attached porcelain dip bowl. Which of the following would be relevant in Jabba’s decision to make the dip bowls or buy them from an outside supplier?

22. The acceptance of a special order will improve overall net operating income so long as the revenue from the special order exceeds:

A) the contribution margin on the order.

B) the incremental costs associated with the order.

C) the variable costs associated with the order.

D) the sunk costs associated with the order.

23. Kinsi Corporation manufactures five different products. All five of these products must pass through a stamping machine in its fabrication department. This machine is Kinsi’s constrained resource. Kinsi would make the most profit if it produces the product that:

A) uses the lowest number of stamping machine hours.

B) generates the highest contribution margin per unit.

C) generates the highest contribution margin ratio.

D) generates the highest contribution margin per stamping machine hour.

24. In a sell or process further decision, consider the following costs:

I. A variable production cost incurred prior to split-off.

II. A variable production cost incurred after split-off.

III.An avoidable fixed production cost incurred after split-off.

Which of the above costs is (are) not relevant in a decision regarding whether the product should be processed further?

A) Only I

B) Only III

C) Only I and II

D) Only I and III

25. Gandy Company has 5,000 obsolete desk lamps that are carried in inventory at a manufacturing cost of $50,000. If the lamps are reworked for $20,000, they could be sold for $35,000. Alternatively, the lamps could be sold for $8,000 for scrap. In a decision model analyzing these alternatives, the sunk cost would be:

A) $8,000

B) $15,000

C) $20,000

D) $50,000

26. Hodge Inc. has some material that originally cost $74,600. The material has a scrap value of $57,400 as is, but if reworked at a cost of $1,500, it could be sold for $54,400. What would be the incremental effect on the company’s overall profit of reworking and selling the material rather than selling it as is as scrap?

A) -$79,100

B) -$21,700

C) -$4,500

D) $52,900

27. Milford Corporation has in stock 16,100 kilograms of material R that it bought five years ago for $5.75 per kilogram. This raw material was purchased to use in a product line that has been discontinued. Material R can be sold as is for scrap for $3.91 per kilogram. An alternative would be to use material R in one of the company’s current products, S88Y, which currently requires 2 kilograms of a raw material that is available for $7.60 per kilogram. Material R can be modified at a cost of $0.77 per kilogram so that it can be used as a substitute for this material in the production of product S88Y. However, after modification, 4 kilograms of material R is required for every unit of product S88Y that is produced. Milford Corporation has now received a request from a company that could use material R in its production process. Assuming that Milford Corporation could use all of its stock of material R to make product S88Y or the company could sell all of its stock of the material at the current scrap price of $3.91 per kilogram, what is the minimum acceptable selling price of material R to the company that could use material R in its own production process?

A) $0.88

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