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51.Bradley Inc. has the capacity to make 100,000 windows.  Bradley

Question : 51.Bradley Inc. has the capacity to make 100,000 windows.  Bradley : 1416288

 

51.Bradley Inc. has the capacity to make 100,000 windows.  Bradley is currently operating at 100% capacity.  The windows usually sell for $20.00 each.  Costs for each window follow:

 

Direct materials$ 5.00

Direct labor3.00

Variable factory overhead2.00

Fixed factory overhead4.00

Total$14.00

 

The Army has offered to buy 10,000 windows for $12.00 each for barracks.  Bradley should:

a.Reject the offer because it currently does not have enough capacity to accept the order.

b.Reject the order because the company will lose $20,000 on the order.

c.Accept the offer because the company will realize $20,000 in additional contribution margin.

d.Accept the offer because the company will realize $40,000 in additional contribution margin.

52.The practice of accepting a selling price when there is excess capacity, as long as it exceeds variable cost is called:

a.Contribution pricing.

b.Differential pricing.

c.Capacity pricing.

d.Special pricing.

53.Chapman Corporation manufactures lamps.  Management is currently studying whether the company should continue to make the cord assembly or purchase them from Graham Company for $5.25.  Chapman needs 20,000 cord assemblies a year.  If the part is purchased, the company can not use the released facilities for another manufacturing activity.

Chapman’s unit cost to manufacture the cord assembly is:

Direct materials$2.25

Direct labor1.75

Factory overhead (70% fixed)2.50

Total$6.50

 

The decision Chapman should make and the related differential income is:

Decision                           Differential Income

a.Buy from Graham                      $10,000

b.Make the assembly                    $10,000

c.Make the assembly                    $25,000

d.Buy from Graham                      $25,000

54.Cleese Company currently purchases a finished part from Idle Company, but is considering using it excess capacity to make the part.  Normal capacity is 20,000 hours, but Cleese is currently running at 17,000 hours.  Details about budgeted factory overhead follow:

Total  Per Hour

Fixed factory overhead$40,000$2.00

Variable factory overhead50,0002.50

$90,000$4.50

 

Direct costs to manufacture 1,000 parts in-house would be:

Materials$  6,000

Direct labor (2,000 @ $8 per hour)16,000

$22,000

 

The relevant unit cost Cleese should use to decide whether to make or buy the part is:

a.$31.00

b.$24.50

c.$27.00

d.$26.00

55.Another term for cost incurred to sell and deliver products is:

a.Differential costs.

b.Administrative costs.

c.General costs.

d.Distribution costs.

56.An example of a distribution cost that can be directly assigned to selling activity would be:

a.Advertising costs.

b.Commissions.

c.Sales manager’s salary.

d.Telephone expenses.

57.In performing an activity-based costing study for distribution costs, appropriate cost drivers for preparing orders for shipment would include all of the following except the:

a.Number of orders shipped.

b.Time spent packing orders.

c.Time devoted to selling each product.

d.Number of items per order.

 

 

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