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    Cost Accounting Multiple Choice Questions

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    1. Mission Electronics manufactures and sells basic DVD players for sale under various generic store brand
    names. The cost of one of their models follows:

    Materials $ 18.00
    Labor 12.00
    Variable overhead 5.00
    Fixed overhead ($2,700,000 per year; 450,000 units per year) 6.00
    Total $ 41.00

    Pacific Cash & Carry, a chain of low-price electronic sales and rental outlets, has asked Mission to supply them with 30,000 players for a special promotion Pacific is planning. Pacific has offered to pay Mission a unit price of $42 per DVD player. The regular selling price is $60. The special order would require some modification to the basic model. These modifications would add $4.00 per unit in material cost, $1.50 per unit in labor cost, and $0.50 in variable overhead cost. Although Mission has the capacity to produce the 30,000 units without affecting its regular production of 450,000 units, a one-time rental of special testing equipment to meet Pacific's requirements would be needed. The equipment rental would be $45,000 and would allow Mission to test up to 50,000 units.

    (a) Prepare a schedule to show the impact of filling the Pacific order on Mission's profits for the year.
    (Input all amounts as positive values. Enter your answers in thousands of dollars. Omit the "$" sign in your response.)

    All revenues and costs in thousands of dollars
    Status Quo
    450,000 Units
    480,000 Units Difference
    Sales revenue $ 27000 $ 28,260 $ 1260 higher
    Less variable costs:
    Materials 8100 8778 660 higher
    Labor 5400 5805 405 higher
    Variable overhead 2250 2415 165 higher
    Total variable cost $ 15750 $ 16998 $ 1230 higher
    Contribution margin $ 11250 $ 11262 $ 30 higher
    Less fixed costs 2700 2745 45 higher
    Operating profit $ 8550 $ 8517 $ 15 lower

    (b) Would you recommend that Mission accept the order?
    (c) What is the minimum quantity of DVD players in the special order that would make it profitable?

    Understand how to apply differential analysis to pricing decisions.
    Sid's Skins makes a variety of covers for electronic organizers and portable music players. The company's designers have discovered a market for a new clear plastic covering with college logos for a popular music player. Market research indicates that a cover like this would sell well in the market priced at $21. Sid desires an operating profit of 20 percent of costs.

    What is the highest acceptable manufacturing cost for which Sid's would be willing to produce the cover?
    (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

    Highest acceptable manufacturing cost $ 17.50
    Worksheet Difficulty: Easy
    Learning Objective: 04-03
    Understand several approaches for establishing prices based on costs for long-run pricing decisions.

    Mobility Partners makes wheelchairs and other assistive devices. For years, it has made the rear wheel
    assembly for its wheelchairs. A local bicycle manufacturing firm, Trailblazers, Inc., offered to sell these
    rear wheel assemblies to Mobility. If Mobility makes the assembly, its cost per rear wheel assembly is as
    follows (based on annual production of 2,000 units):

    Direct materials $ 25
    Direct labor 53
    Variable overhead 16
    Fixed overhead 47

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    Solution Preview

    Note: The difference between Total Variable Cost for Status Quo & Alternative should be $1248 and not $1230. Also, the operating profit difference should be 33 and not 17.

    Calculation ...

    Solution Summary

    The following posting addresses cost accounting related multiple choice questions.