QUESTION: 166 Topic 3: Part 3 Sec Three (106 to 176)

Leland Manufacturing uses 10 units of Part Number KJ37 each month in the production of radar equipment. The unit cost to manufacture 1 unit of KJ37 is presented below.

Material handling represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased components on the basis of their cost. This is a separate charge in addition to manufacturing overhead. Leland's annual manufacturing overhead budget is one-third variable and two-thirds fixed. Scott Supply, one of Leland's reliable vendors, has offered to supply Part Number KJ37 at a unit price of $15,000. Assume Leland Manufacturing is able to rent all idle capacity for $25,000 per month. If Leland decides to purchase the 10 units from Scott Supply, Leland's monthly cost for KJ37 would

Increase $48,000.
Increase $23,000.
Decrease $7,000.
Change by some amount other than those given.

Answer(s): B

Explanation:

Purchasing would increase unit cost by $4,800 ($26,000 cost to purchase--$21,200 cost to manufacture), an increase of $48,000 per month (10 units x $4,800). However, the $25,000 of rental income would reduce the increase in net costs to $23J00 per month.

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QUESTION: 167 Topic 3: Part 3 Sec Three (106 to 176)

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Leland Manufacturing uses 10 units of Part Number KJ37 each month in the production of radar equipment. The unit cost to manufacture 1 unit of KJ37 is presented below.

Material handling represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased components on the basis of their cost. This is a separate charge in addition to manufacturing overhead. Leland's annual manufacturing overhead budget is one-third variable and two-thirds fixed. Scott Supply, one of Leland's reliable vendors, has offered to supply Part Number KJ37 at a unit price of $15,000.Assume that Leland Manufacturing does not wish to commit to a rental agreement but could use idle capacity to manufacture another product that would contribute $52,000 per month. If Leland elects to manufacture KJ37 in order to maintain quality control, Leland's opportunity? cost is

$18,000
$(20,000)
$4,000
Some amount other than those given

Answer(s): C

Explanation:

Opportunity cost is the maximum alternative earnings that might have been obtained if the productive good service or capacity had been applied to some alternative use. The additional total monthly cost of purchasing the component is $48,000. If the idle facilities could be used to produce a product contributing $52,000 per month, the net benefit opportunity cost of manufacture would be $4,0000.

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QUESTION: 168 Topic 3: Part 3 Sec Three (106 to 176)

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A manufacturer has been approached by a new customer who wants to place a one-time order for a component similar to one that the manufacturer makes for another customer. Existing sales will not be affected by acceptance of this order. The manufacturer has a policy of setting its targeted selling price at 60% over full manufacturing cost. The manufacturing costs and the targeted selling price for the existing product are presented as follows.

The manufacturer has excess capacity to produce the quantity of the component desired by the new customer. The direct materials used in the component for the new customer would cost the manufacturer $0.25 less than the component currently being made. The variable selling expenses (packaging and shipping) would be the same, or $0.90 per unit. Under these circumstances, the minimum unit price at which the manufacturer would accept the special order is one exceeding.

$8.35
$9.25
$14.00
$14.80

Answer(s): B

Explanation:

Because the manufacturer has excess capacity and existing sales will be unaffected, the minimum price the manufacturer should be willing to accept is anything above the total variable cost of the unit ($2.05+$3.60+$2.70+$0.90=$9.25), an amount that includes the variable manufacturing cost and the variable selling expenses. The fixed costs are not relevant.

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QUESTION: 169 Topic 3: Part 3 Sec Three (106 to 176)

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JJ Motors, Inc. employs 45 sales personnel to market its line of luxury automobiles. The average car sells for $23,000, and a 6% commission is paid to the salesperson. JJ Motors is considering a change to a commission arrangement that would pay each salesperson a salary of $2,000 per month plus a commission of 2% of the sales made by that salesperson. The amount of total monthly car sales at which JJ Motors would be indifferent as to which plan to select is

$2250,000
$3000.000
$1500,000
$1250,000

Answer(s): A

Explanation:

Given that X equals the cars sold, the indifference equation and its solution are as follows:

At a price of $23,000 each, 97.826 1 cars will sell for $2,250,000. Another approach is to determine the sales per person at which $2,000 is equal to a 4% commission. This amount is $50 .000 ($2000 + .04) per person, or $2,250,000 (45 x $50,000) for the entire sales force.

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QUESTION: 166 Topic 3: Part 3 Sec Three (106 to 176)

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QUESTION: 167 Topic 3: Part 3 Sec Three (106 to 176)

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QUESTION: 168 Topic 3: Part 3 Sec Three (106 to 176)

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QUESTION: 169 Topic 3: Part 3 Sec Three (106 to 176)

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