Multiple Choice

Question 16
Donald Company provided the following information regarding its one and only product-skateboards.

The manufacturing cost per unit, if the contribution approach is used, is:

$13.00

$13.50

$14.75

$15.50

Question 17

Miller Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 5,000 units of this part are as follows:

Of the fixed factory overhead costs, $72,000 is avoidable. Assume that Miller Company can buy 5,000 units of the part from another producer for $100.80 each. The current facilities could be used to make 5,000 units of a product that has a contribution margin of $24 per unit. Fixed factory overhead costs to produce this new product would be exactly the same as for the currently produced part. Miller Company should:

continue to make the part and earn an extra $48,000 in profit

buy the part and produce the new product and earn an extra $4.80 per unit contribution to profit

continue to make the part and earn an extra $4.80 per unit contribution to profit

buy the part and produce the new product and earn an extra $24 per unit contribution to profit

Question 18

Hoover Company manufactures a part for its production cycle. The costs per unit for 10,000 units of this part are as follows:

The fixed factory overhead costs are unavoidable. Madison Company has offered to sell 10,000 units of the same part to Hoover Company for $55 a unit. Assuming no other use for the facilities, Hoover Company should:

make the part to save $4 per unit

buy from Madison to save $6 per unit

make the part to save $6 per unit

buy from Madison to save $4 per unit

Question 19

Grape Company produces three products using a joint process which accumulates $25,000 in joint costs. The products, A, B, and C, can be sold at split-off or processed further and then sold. The production level for each product is 10,000 units. The following unit information is also available:

Product C should be processed beyond the split-off point because:

incremental revenues will exceed incremental costs

incremental costs exceed incremental revenue

sales value at completion exceeds sales value at split-off

None of these answers is correct.

Question 20

Lemon Manufacturing Company produces three products using a joint process that accumulates $25,000 in joint costs. The products, A, B, and C, can be sold at split-off or processed further and then sold. The production level for each product is 10,000 units. The following unit information is also available:

Product B:

should be processed further to increase profits by $70,000

should be sold at split-off to maximize profits

should be processed further to increase profits by $3 per unit

can be processed further or sold at split-off; it makes no difference.