Question

13. unland Company incurs the following costs to produce 11400 units of a subcomponent:

Direct materials	$9576
Direct labor	12882
Variable overhead	14364
Fixed overhead	16200

An outside supplier has offered to sell Sunland the subcomponent for $2.85 a unit.

If Sunland accepts the offer, by how much will net income increase (decrease)?

$(3306)

$4332

$20532

$(10032)

14. Coronado Company gathered the following data about the three products that it produces:

Product		Present Sales Value		Estimated Additional Processing Costs		Estimated Sales if Processed Further
A		$14000		$9000		$24000
B		16000		6000		21000
C		13000		4000		19000

Which of the products should not be processed further?

Product B

Products A and C

Product A

Product C

15.Bonita Industries produces several products that can be sold at the split-off point or processed further and then sold. The following results are from a recent period:

Product		Sales Value at Split-off	Additional Variable Costs	Sales Value after Further Processing
Green lumber		$163600	$25400	$189000
Rough lumber		128000	28900	179200
Sawdust		108000	20700	136800

The additional profit that would result from processing rough lumber further is

$22300.

$99100.

$150300.

$51200.

16.Marigold Bunyon Lumber Co. produces several products that can be sold at the split-off point or processed further and then sold. The following results are from a recent period:

Product		Sales Value at Split-off	Additional Variable Costs	Sales Value after Further Processing
Green lumber		$160600	$24800	$185400
Rough lumber		125000	28300	175000
Sawdust		105000	20100	133200

Which products should be processed further?

Green lumber and rough lumber.

Green lumber and sawdust.

Rough lumber and sawdust.

All three products.

17. heffield Corp. produces several products that can be sold at the split-off point or processed further and then sold. The following results are from a recent period:

Product	Sales Value at Split-off	Additional Variable Costs	Sales Value after Further Processing
Green lumber	$159600	$24000	$178000
Rough lumber	120000	27300	168000
Sawdust	100000	19100	127200

What is the increase in profit if the appropriate products are processed further?

$248800

$28800

$93600

$23200

18. Fido Company has three segments, one of which is unprofitable. The Duchess Doggy Biscuit segment had the following results last period:

Sales	$1,040,000
Variable expenses	(640,000)
Contribution margin	400,000
Fixed expenses	(540,000)
Net loss	$(140,000)

If the Duchess Doggy Biscuit segment is eliminated, 50% of the fixed expenses can also be eliminated, the other 50% will be reallocated. What will happen to company net income if this product line is eliminated?

Decrease by $130,000.

Decrease by $400,000.

Increase by $140,000.

Increase by $270,000.

19. Bergeron Company is considering replacing equipment with a cost of $30,000, accumulated depreciation of $20,000, and a 2 year remaining useful life. The new equipment has a cost of $42,000 and a useful life of 6 years. The seller has offered a trade-in allowance of $7,500. The new equipment is much more efficient. Bergeron projects cost savings of $10,000 per year if the new equipment is purchased. Which of the following is not relevant in deciding whether to retain or replace equipment?

Trade-in allowance of existing equipment.

Book value of existing equipment.

Cost of new equipment.

Cost savings.

Answer 1

Net Income will increase by Variable cost of manufacturing – cost of buying

= 9576+12882+14364 – 11400*2.85

= $4,332

$4332

Those products whose Selling price after processing – costs of processing is higher than sales value before processing should only be processed further

Hence, Product B should not be processed further

Additional Profit = Selling price after processing – costs of processing - sales value before processing

= 179200-28900-128000

= $22,300

Those products whose Selling price after processing – costs of processing is higher than sales value before processing should only be processed further

Hence, Rough lumber and sawdust should be processed further

Increase in profit = 168000+127200-27300-19100-120000-100000

= $28,800

Increase in net income = Fixed costs avoided – contribution margin lost

= 270,000-400,000

= -$130,000

Hence, decrease by $130,000

Book Value of Existing Equipment as it is a sunk cost