1. A company is considering a special order for 1,000 units to be priced at $8.90 (the normal price would be $11.50). The order would require specialized materials costing $4.00 per unit. Direct labor and variable factory overhead would cost $2.15 per unit. Fixed factory overhead is $1.20 per unit. However, the company has excess capacity, and acceptance of the order would not raise total fixed factory overhead. The warehouse, however, would have to add capacity costing $1,300. Which of the following is relevant to the special order?

a. $11.50

b. $1.20

c. $7.35

d. $8.90

2. Walloon Company produced 150 defective units last month at a unit manufacturing cost of $30. The defective units were discovered before leaving the plant. Walloon can sell them “as is” for $20 or can rework them at a cost of $15 and sell them at the regular price of $50. What is the total relevant cost of reworking the defective units?

a. $2,250

b. $3,000

c. $4,500

d. $6,750

3. Pasha Company produced 50 defective units last month at a unit manufacturing cost of $30. The defective units were discovered before leaving the plant. Pasha can sell them “as is” for $20 or can rework them at a cost of $15 and sell them at the regular price of $50. Which of the following is not relevant to the sell-or-rework decision?

a. $30

b. $20

c. $15

d. $50

4. Future costs that differ across alternatives are:

a. Opportunity costs

b. Sunk costs

c. Relevant costs

d. Variable costs

5. Thaler Company bought $26,000 of raw materials a year ago in anticipation of producing 5,000 units of a deluxe version of its product to be priced at $75 each. Now the price of the deluxe version has dropped to $35 each, and Thaler is now deciding whether to produce 1,500 units of the deluxe version at a cost of $48,000 or to scrap the project. What is the opportunity cost of this decision?

a. $175,000

b. $375,000

c. $48,000

d. $26,000