MANAGERIAL ACCOUNTING QUESTIONS AND ANSWERS 1
Gnome Company is deciding whether to continue to manufacture a component or to buy the
component from a supplier. Which of the following is relevant to this decision?
A. the potential uses of the facilities that are currently used to manufacture the component
B. the insurance on the manufacturing facility that will continue regardless of the decision
C. the cost of the equipment that is currently being used to manufacture the component
D. fixed costs that do not differ between the alternatives
A. the potential uses of the facilities that are currently used to manufacture the component
Voltaic Electronics uses a standard part in the manufacture of different types of radios. The
total cost of producing 36,000 parts is $110,000, which includes fixed costs of $50,000 and
variable costs of $60,000. The company can buy the part from an outside supplier for $1 per
unit and avoid 30% of the fixed costs. Assume that the company can use the freed
manufacturing space to make another product that can earn a profit of $16,000. If Voltaic
outsources, what will be the effect on operating income?
A. decrease of $15,000
B. decrease of $55,000
C. increase of $55,000
D. increase of $16,000
C. increase of $55,000
Carlos Naturals manufactures bulk quantities of cleaning fluids. The company currently sells
800 containers a month at a sales price of $28 per unit. The addition of a new disinfectant will
result in a sales price of $30 per unit for the improved product. It would cost a total of $4,400
per month to make the alteration. Operating income would ________.
A. decline by $2,800
B. increase by $2,800
C. increase by $4,400
D. decline by $22,400
A. decline by $2,800
If a business is considering the option of processing its product further, it ignores the
________.
A. additional costs necessary to process further
, B. cost that is required to produce the basic product before processing further
C. additional revenue that can be earned if processed further
D. fact that additional processing will produce any environmental toxins
B. cost that is required to produce the basic product before processing further
In deciding whether to drop its electronics product line, a company's manager should ignore
________.
A. the variable and fixed costs it could save by dropping the product line
B. the amount of unavoidable fixed costs
C. the effect of dropping the electronics product line on the sales of its other products
D. the revenues it would lose from dropping the product line
B. the amount of unavoidable fixed costs
Geo Company's western territory's forecasted income statement for the upcoming year is as
follows:
Sales revenue $850,000
Variable costs (520,000)
Contribution margin $330,000
Fixed costs (480,000)
Operating loss $(150,000)
The company's management is considering dropping the western territory and has
determined that 80% of the fixed costs are avoidable. What is the change in the forecasted
operating loss for the upcoming year if the western territory is dropped? Assume the
company predicts an operating loss across the entire company.
A. The loss will be reduced by $384,000.
B. The loss will be increased by $54,000.
C. The loss will be increased by $384,000.
D. The loss will be reduced by $54,000.
D. The loss will be reduced by $54,000.
Pastryworks Company manufactures two products-toaster ovens and bread machines. The
following data are available:
Toaster Ovens Bread Machines
Sales price $100 $140
Variable costs $40 $60
Gnome Company is deciding whether to continue to manufacture a component or to buy the
component from a supplier. Which of the following is relevant to this decision?
A. the potential uses of the facilities that are currently used to manufacture the component
B. the insurance on the manufacturing facility that will continue regardless of the decision
C. the cost of the equipment that is currently being used to manufacture the component
D. fixed costs that do not differ between the alternatives
A. the potential uses of the facilities that are currently used to manufacture the component
Voltaic Electronics uses a standard part in the manufacture of different types of radios. The
total cost of producing 36,000 parts is $110,000, which includes fixed costs of $50,000 and
variable costs of $60,000. The company can buy the part from an outside supplier for $1 per
unit and avoid 30% of the fixed costs. Assume that the company can use the freed
manufacturing space to make another product that can earn a profit of $16,000. If Voltaic
outsources, what will be the effect on operating income?
A. decrease of $15,000
B. decrease of $55,000
C. increase of $55,000
D. increase of $16,000
C. increase of $55,000
Carlos Naturals manufactures bulk quantities of cleaning fluids. The company currently sells
800 containers a month at a sales price of $28 per unit. The addition of a new disinfectant will
result in a sales price of $30 per unit for the improved product. It would cost a total of $4,400
per month to make the alteration. Operating income would ________.
A. decline by $2,800
B. increase by $2,800
C. increase by $4,400
D. decline by $22,400
A. decline by $2,800
If a business is considering the option of processing its product further, it ignores the
________.
A. additional costs necessary to process further
, B. cost that is required to produce the basic product before processing further
C. additional revenue that can be earned if processed further
D. fact that additional processing will produce any environmental toxins
B. cost that is required to produce the basic product before processing further
In deciding whether to drop its electronics product line, a company's manager should ignore
________.
A. the variable and fixed costs it could save by dropping the product line
B. the amount of unavoidable fixed costs
C. the effect of dropping the electronics product line on the sales of its other products
D. the revenues it would lose from dropping the product line
B. the amount of unavoidable fixed costs
Geo Company's western territory's forecasted income statement for the upcoming year is as
follows:
Sales revenue $850,000
Variable costs (520,000)
Contribution margin $330,000
Fixed costs (480,000)
Operating loss $(150,000)
The company's management is considering dropping the western territory and has
determined that 80% of the fixed costs are avoidable. What is the change in the forecasted
operating loss for the upcoming year if the western territory is dropped? Assume the
company predicts an operating loss across the entire company.
A. The loss will be reduced by $384,000.
B. The loss will be increased by $54,000.
C. The loss will be increased by $384,000.
D. The loss will be reduced by $54,000.
D. The loss will be reduced by $54,000.
Pastryworks Company manufactures two products-toaster ovens and bread machines. The
following data are available:
Toaster Ovens Bread Machines
Sales price $100 $140
Variable costs $40 $60
