Question

11. Shotz Beverage Corporation's standards call for 2,500 direct labor-hours to produce 1,000 barrels of product. During May 900 barrels were produced and the company worked 2.400 direct labor hours. The standard hours allowed for May production would be: A 2,500 hours B. 2.400 hours C. 2,250 hours D. 1,800 hours 12. Opportunity costs are: A Not used for decision making B. The same as variable costs C. The same as historical costs D. Relevant in decision making 13. Granger Corporation currently records $4,000 of depreciation each year on the computer that it uses for its major data processing needs. The computer currently has one more year of useful life left and it will have a salvage value of zero at the end of that year. Ron, one of the accountants, at Granger, suggested that the computer be sold immediately for $3,000 and that the company hire a data processing firm to handle the corporation's data processing needs. The computer currently requires $25,000 in annual operating costs in addition to the depreciation The data processing firm would charge $10,000 per year for its services. If Granger decides to implement the change, what effect will this have on the corporation's net cash flow for the last year of the computer's useful life? A Increase of $15,000 B. Increase of $18,000 C. Decrease of $22,000 D. Decrease of $25,000 14. Hogan, Inc. regularly uses material Y510 which it paid $2,530 seve surplus material, it would fetch the open market for $5.45 per lite been asked to determine there ulady uses material Y51B and currently has in stock 460 liters of the material for 30 several weeks ago. If this were to be sold as is on the open market as it would fetch $4.55 per liter. New stocks of the material can be purchased on rket for $5.45 per liter, but it must be purchased in lots of 1,000 liters. You have to determine the relevant cost of 720 liters of the material to be used in a job for a customer. The relevant cost of the 720 liters of material Y51B is. A $3.924 B. $5,450 c. $3,510 D. $3.276

Answer 1

11.

For 1,000 barrels 2,500 direct labor hours are required

For 900 barrels labor hours required would be 2,500 / 1,000 X 900 = 2,250 hours

So the correct answer is Option C

12.

Opportunity costs - Opportunity costs are the costs of NEXT BEST ALTERNATIVE or in other words the INCOME FOREGONE if an option is selected,

Sunk costs are historical. Option C is incorrect. Opportunity costs are not variable costs.
Opportunity costs are RELEVANT in decision making.

13.

If the change is implemented immediately, there would be

1. Increase in cash flow by $ 3,000 due to sale of computer
2. Inflow because of saving in $ 25,000 operating costs
3. Outflow due to $10,000 charges

Net Increase of $ 18,000

Option B is correct

14.

The correct answer for this one is Option A 3,924

For this material (since it is REGULARLY USED) the current market price is the RELEVANT PRICE

So price is 720 X 5.45 = 3,924