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Homework answers / question archive / The Schmidt Corporation has in its inventory 4,000 damaged radios that cost $50,000

The Schmidt Corporation has in its inventory 4,000 damaged radios that cost $50,000

Management

  1. The Schmidt Corporation has in its inventory 4,000 damaged radios that cost $50,000. The radios can be sold in their present condition for $32,000, or repaired at a cost of $43,000 and sold for $66,000. Which option should the company choose and how much better off would it be as compared to the other option?
    Repair, better off by $66,000
    Repair, better off by $23,000
    Sell in present condition, better off by $9,000.
    Sell in present condition, better off by $32,000.
  2. Clear Sky Sailmakers manufactures sails for sailboats. The company has the capacity to produce 15,000 sails per year, but is currently producing and selling 10,000 sails per year. The following information relates to current production:

    Sale price per unit
    $250


    Variable costs per unit:

    Manufacturing
    $165
    Marketing and administrative
    $50


    Total fixed costs:

    Manufacturing
    $750,000
    Marketing and administrative
    $200,000

    If a special sales order is accepted for 5,000 sails at a price of $225 per unit, and fixed costs remain unchanged, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)
    Increase by $50,000
    Increase by $150,000
    Decrease by $50,000
    Increase by $1,125,000
  3. Rosemont Tennis is planning for the coming year. Investors would like to earn a 12% return on the company's $25 million of assets. The company primarily incurs fixed costs to maintain the tennis courts. Fixed costs are projected to be $12,500,000 for the year. About 500,000 court time hours are expected to be played each year. Variable costs are about $5 per hour of court time. The Rosemont Country Club and Tennis Courts has a favorable reputation in the area and therefore, has some control over the price per hour of court time. Using a cost-plus approach, what price should Rosemont Tennis charge for an hour of court time?
    $36.00
    $24.00
    $33.00
    $30.00
  4. Pottery Unlimited has two product lines: cups and pitchers. Income statement data for the most recent year follow:


    Total
    Cups
    Pitchers
    Sales revenue
    $460,000
    $310,000
    $150,000
    Variable expenses
    355,000
    235,000
    120,000
    Contribution margin
    105,000
    75,000
    30,000
    Fixed expenses
    76,000
    38,000
    38,000
    Operating income (loss)
    $29,000
    $37,000
    $(8,000)

    If $10,000 of fixed costs will be eliminated by dropping the Pitcher line, how will operating income be affected?
    Decrease $10,000
    Increase $19,000
    Decrease $20,000
    Increase $8,000
  5. Spahr Company produces a part that is used in the manufacture of one of its products. The unit
    manufacturing costs of this part, assuming a production level of 5,000 units, are as follows:


    Direct materials
    $2.00
    Direct labor
    $4.00
    Variable manufacturing overhead
    $3.00
    Fixed manufacturing overhead
    $3.00
    Total cost
    $12.00
    The fixed overhead costs are unavoidable.



    Erickson Company has offered to sell 5,000 units of the same part to Spahr Company for $11 per unit. Assuming the company has no other use for its facilities, what should Spahr Company do?
    Buy from Erickson and save $1 per unit.
    Make the part and save $7 per unit.
    Make the part and save $5 per unit.
    Make the part and save $2 per unit.
  6. Fine Pottery Processors manufactures two products, platters and tureens, from a joint process. Platters are allocated $5,000 of the total joint costs of $25,000. There are 1,500 platters produced and 1,500 tureens produced each year. Platters can be sold at the split-off point for $12 per unit, or they can be processed further into a deluxe platter for additional processing costs of $5,000 and sold for $16 for each deluxe platter. If the platters are processed further and made into deluxe platters, the effect on operating income would be:
    $1,000 net decrease in operating income.
    $18,000 net decrease in operating income.
    $1,000 net increase in operating income.
    $18,000 net increase in operating income.

 

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