Practice Exam
Here is a breakdown of the questions that will be covered based on current and past material.
Chapter 13
3 Workout Problems with 10 Questions
3 Multiple Choice Questions
Prior Units
7 questions
Learning Objectives Covered from Previous Units
Chapter 1
1-1
1-2
1-3
Chapter 2
2-1
2-2
2-3
Chapter 5
5-1
5-2
5-4
Chapter 9
9-2
9-3
9-4
Chapter 10
10-1
10-2
10-3
1) One of the employees of Davenport Corporation recently was involved in an accident with
one of the corporation's delivery vans. The corporation is either going to repair the damaged
van or sell it as is and buy a comparable used van. Information related to this decision is
provided below:
Initial cost of the damaged van $ 30,000
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Accumulated depreciation to date on van $ 18,000
Salvage value of van immediately before crash $ 9,000
Salvage value of van immediately after crash $ 1,000
Cost to repair damaged van $ 5,000
Cost of a comparable used van $ 10,000
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Based on the information above, Davenport would be financially better off:
A) $1,000 by buying the comparable van.
B) $2,000 by buying the comparable van.
C) $2,000 by repairing the damaged van.
D) $4,000 by repairing the damaged van.
2) Key Corporation is considering the addition of a new product. The expected cost and revenue
data for the new product are as follows:
Annual sales 2,500 units
Selling price per unit $ 304
Variable costs per unit:
Production $ 125
Selling $ 49
Avoidable fixed costs per year:
Production $ 50,000
Selling $ 75,000
Allocated common fixed corporate costs per year $ 55,000
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If the new product is added, the combined contribution margin of the other, existing products
is expected to drop $65,000 per year. Total common fixed corporate costs would be
unaffected by the decision of whether to add the new product.
If the new product is added next year, the financial advantage (disadvantage) resulting from
this decision would be:
A) $325,000
B) $200,000
C) $145,000
D) $135,000
3) Ahrends Corporation makes 70,000 units per year of a part it uses in the products it
manufactures. The unit product cost of this part is computed as follows:
Direct materials $ 17.80
Direct labor 19.00
Variable manufacturing overhead 1.00
Fixed manufacturing overhead 17.10
Unit product cost $ 54.90
An outside supplier has offered to sell the company all of these parts it needs for $48.50 a
unit. If the company accepts this offer, the facilities now being used to make the part could
be used to make more units of a product that is in high demand. The additional contribution
margin on this other product would be $273,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part
would be avoided. However, $8.20 of the fixed manufacturing overhead cost being applied to
the part would continue even if the part were purchased from the outside supplier. This fixed
manufacturing overhead cost would be applied to the company's remaining products.
What is the financial advantage (disadvantage) of purchasing the part rather than making it?
Note: Round your intermediate calculations to 2 decimal places.
A) $273,000
B) ($126,000)
C) $147,000
D) $448,000
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4) The Melville Corporation produces a single product called a Pong. Melville has the capacity
to produce 60,000 Pongs each year. If Melville produces at capacity, the per unit costs to
produce and sell one Pong are as follows:
Direct materials $ 15
Direct labor $ 12
Variable manufacturing overhead $8
Fixed manufacturing overhead $9
Variable selling expense $8
Fixed selling expense $3
The regular selling price for one Pong is $80. A special order has been received by Melville
from Mowen Corporation to purchase 6,000 Pongs next year. If this special order is accepted,
the variable selling expense will be reduced by 75%. However, Melville will have to
purchase a specialized machine to engrave the Mowen name on each Pong in the special
order. This machine will cost $9,000 and it will have no use after the special order is filled.
The total fixed manufacturing overhead and selling expenses would be unaffected by this
special order. Assume that direct labor is a variable cost.
Assume Melville anticipates selling only 50,000 units of Pong to regular customers next
year. If Mowen Corporation offers to buy the special order units at $65 per unit, the annual
financial advantage (disadvantage) for the company as a result of accepting this special order
should be:
A) $60,000
B) ($90,000)
C) $159,000
D) $36,000
5) The constraint at Pickrel Corporation is time on a particular machine. The company makes
three products that use this machine. Data concerning those products appear below:
VD JT SM
Selling price per unit $ 344.85 $ 415.40 $ 119.32
Variable cost per unit $ 270.18 $ 310.88 $ 91.96
Minutes on the constraint 5.70 6.70 1.90
Assume that sufficient time is available on the constrained machine to satisfy demand for all
but the least profitable product. Up to how much should the company be willing to pay to
acquire more of this constrained resource?
Note: Round your intermediate calculations to 2 decimal places.
A) $15.60 per minute
B) $13.10 per minute
C) $104.52 per unit
D) $27.36 per unit
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6) Faustina Chemical Corporation manufactures three chemicals (TX14, NJ35, and KS63) from
a joint process. The three chemicals are in industrial grade form at the split-off point. They
can either be sold at that point or processed further into premium grade. Costs related to each
batch of this chemical process is as follows:
TX14 NJ35 KS63
Sales value at split-off point $ 16,000 $ 12,000 $ 5,000
Allocated joint costs $ 6,000 $ 6,000 $ 6,000
Sales value after further processing $ 20,000 $ 18,000 $ 9,000
Cost of further processing $ 5,000 $ 3,000 $ 2,000
For which product(s) above would it be more profitable for Faustina to sell at the split-off
point rather than process further?
A) TX14 only
B) KS63 only
C) TX14 and KS63 only
D) NJ35 and KS63 only
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Answer Key
Test name: Practice Exam # 3
1) D
Comparison of repairing the damaged van versus buying the replacement van:
Cost to repair damaged van $(5,000)
Cost of a comparable used van 10,000
Salvage value of van immediately after crash (1,000)
Financial advantage (disadvantage) of repairing the damaged van $ 4,000
2) D
Sales (2,500 units × $304 per unit) $ 760,000
Less costs:
Variable production costs (2,500 units × $125 per unit) 312,500
Variable selling costs (2,500 units × $49 per unit) 122,500
Avoidable fixed production costs 50,000
Avoidable fixed selling costs 75,000
Decline in existing product line contribution margin 65,000
Total cost 625,000
Financial advantage (disadvantage) $ 135,000
3) C
Relevant cost to make:
Direct materials $ 17.80
Direct labor 19.00
Variable manufacturing overhead 1.00
Avoidable fixed manufacturing overhead ($17.10 − $8.20) 8.90
Total relevant cost to make $ 46.70
Analysis of purchasing rather than making:
Cost savings ($46.70 per unit × 70,000 units) $ 3,269,000
Cost to purchase ($48.50 per unit × 70,000 units) (3,395,000)
Additional contribution margin from alternative use of facilities 273,000
Net advantage of purchasing $ 147,000
4) C
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Incremental revenue (6,000 units × $65 per unit) $ 390,000
Less incremental costs:
Direct materials (6,000 units × $15 per unit) 90,000
Direct labor (6,000 units × $12 per unit) 72,000
Variable manufacturing overhead (6,000 units × $8 per unit) 48,000
Variable selling expense (6,000 units × 0.25 × $8 per unit) 12,000
Special machine 9,000
Total incremental cost 231,000
Financial advantage (disadvantage) $ 159,000
5) B
VD JT SM
Selling price per unit $ 344.85 $ 415.40 $ 119.32
Variable cost per unit 270.18 310.88 91.96
Contribution margin per unit (a) $ 74.67 $ 104.52 $ 27.36
Amount of the constrained resource required to 5.70 6.70 1.90
produce one unit (b)
Contribution margin per unit of the constrained $ 13.10 $ 15.60 $ 14.40
resource (a) ÷ (b)
Ranking 3 1 2
The company should be willing to pay up to the contribution margin per minute for the
marginal job, which is $13.10 per minute for VD.
6) A
TX14 NJ35 KS63
Final sales value after further processing $ 20,000 $ 18,000 $ 9,000
Less sales value at split-off point 16,000 12,000 5,000
Incremental revenue from further processing 4,000 6,000 4,000
Less cost of further processing 5,000 3,000 2,000
Financial advantage (disadvantage) from further $ (1,000) $ 3,000 $ 2,000
processing
NJ35 and KS63 should be processed further, but TX14 should be sold at the split-off point.
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