11 boyd tool company is a tool manufacturer production capacity is 3 000 units per m 4302803


11) Boyd Tool Company is a tool manufacturer. Production capacity is 3,000 units per month; however, they are considering alternative ways to increase capacity to 3,500 units. One of the alternatives involves purchasing new equipment. In this alternative, there are two choices: machine A will provide increased capacity of 4,000 units per month, with unit costs of $14 at capacity; and, machine B will increase capacity to 3,600 units per month with unit costs of $15 at capacity. Both machines are adequate since Boyd's does not intend to go beyond the 3,500 units per month level for the foreseeable future.

Relevant information for this decision includes

A) whether other costs will change solely due to a capacity increase.

B) the different unit cost of production between the two machine at their capacity levels.

C) Boyd's planned capacity utilization.

D) excess capacity of either machine.

E) the different unit cost of production between the two machines at Boyd's planned capacity levels.

12) First Image has a plant capacity of 80,000 units per month. Unit costs at capacity are:


Direct materials


Direct labour


Variable overhead


Fixed overhead


Marketing – Fixed


Marketing/distribution – Variable



Current monthly sales are 78,000 units at $12.60 each. Computer Output Management has contacted First Image about purchasing 2,000 units at $12.00 each. Current sales would not be affected by the special order. What is First Image's change in profits if the order is accepted?

A) $7,400 increase

B) $8,600 increase

C) $4,400 increase

D) $2,600 decrease

E) $3,600 decrease


13) Precision Sewing Company incorporates the services of Rosie's Sewing. Precision purchases pre-cut dresses from Rosie's. This is primarily known as

A) insourcing.

B) outsourcing.

C) product needs analysis.

D) product specialization.

E) qualitative analysis.


14) Anchor Sign Company manufactures signs from direct materials to the finished product. This is an example of which of the following?

A) insourcing

B) outsourcing

C) product needs analysis

D) product specialization

E) utilization of idle facilities

15) Omark Corporation currently manufactures a subassembly for its main product. The variable costs per unit are $48, in addition to a $6 charge based on estimated selling expenses.


R-Corp has contacted Omark with an offer to sell them 5,000 of the subassemblies for $44.00 each. Omark will eliminate $50,000 of fixed overhead if it accepts the proposal.


What is increase or decrease in profit from accepting the offer?

A) $50,000 increase

B) $100,000 increase

C) $170,000 increase

D) $50,000  decrease

E) $70,000 increase


16) When considering a project that will require production using otherwise idle resources, which of the following are true?

A) Avoidable fixed costs are irrelevant.

B) Only the variable costs of the project are relevant.

C) Only financial factors should be considered.

D) The project should not be undertaken if total revenue from the project is less than the total costs of production.

E) In the short run, even if revenue is less than the total costs of production, the project could help the company's overall operating income.


Northwoods manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $90 per table, consisting of 80% variable costs and 20% fixed costs. The company has surplus capacity available. It is Northwoods' policy to add a 50% markup to full costs.


17) Northwoods is invited to bid on a one-time-only special order to supply 100 rustic tables. What is the lowest price Northwoods should bid on this special order?

A) $6,300

B) $7,200

C) $10,800

D) $13,500

E) $9,000

Answer the following question(s) using the information below.


Welch Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. Welch Manufacturing has excess capacity. The following per unit data apply for sales to regular customers:


Variable costs:


       Direct materials


       Direct labour


       Manufacturing support


       Marketing costs


Fixed costs:


       Manufacturing support


       Marketing costs


Total costs


Markup (50%)


Targeted selling price



18) What is the full cost of the product per unit?

A) $110

B) $170

C) $255

D) $95

E) $140


19) What is the contribution margin per unit?

A) $85

B) $110

C) $145

D) $160

E) $195

20) For Welch Manufacturing, what is the minimum acceptable price of this special order?

A) $110

B) $140

C) $170

D) $240

E) $255




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