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Module 5 Quiz - Quantitative

1.

Question1

Porl Corp. makes an unassembled chair that sells for $50. Product costs are $20 per chair. The product line manager suggests that Porl Corp. should instead sell an assembled chair, as revenues will be higher. Specifically, the market price for this chair is $60. The cost of assembly is $11. Which of the following statements is true?

1 point

The company should not sell the assembled chair because the $11 in costs per table is more than half of the cost of production.

The company should not sell the assembled chair because the $10 in incremental revenue is less than the $11 in incremental costs.

The company should sell the assembled chair because revenues per table are $10 higher.

The company should sell the assembled chair because the total contribution margin increases.

2.

Question2

Joseph Company incurs per-unit costs of $11 in variable costs and $4 in fixed costs to produce its main product, which sells for $24. A new customer in the market, Katherine, offers to purchase 2,500 units at $16 each.

If the special offer is accepted, the units sold to Katherine would have to be produced with capacity that was otherwise going to be used to produce units sold to other customers.

Assuming Joseph Company is adopting a financial perspective, which of the following is true regarding the decision of whether or not to accept Katherine's special order?

1 point

Joseph is indifferent because fixed costs are the same regardless.

Joseph should accept the offer, because each unit sold to Katherine increases profits by $1.

Joseph should accept the offer, because each unit sold to Katherine increases profits by $5.

Joseph should decline the offer, because each unit sold to Katherine decreases profits by $8.

3.

Question3

Boris Company has multiple business units. Unit A has the following information: sales revenue is $200,000; variable expenses are $140,000; fixed expenses are $100,000. Fixed expenses - which are mostly represented by traceable (and avoidable) business unit costs (e.g., rent, depreciation, etc.) - are calculated for each business unit separately.

What is the effect on Boris Company as a whole if Unit A is eliminated?

1 point

Total profit will decrease by $60,000.

Total profit will increase by $60,000.

Total profit will increase by $40,000.

Total profit will decrease by $40,000.

4.

Question4

Lillian Corporation currently makes a key input into its main product. Bernard, a manager within Lillian, is arguing that the organization should outsource production of this input, and buy it from a third-party supplier.

Currently, the per-unit manufacturing costs are $12 in materials, $18 in labor, $8 in variable manufacturing overhead, and $12 in fixed costs per unit. The fixed costs are allocated from the total of fixed costs generated by the entire factory.

Bernard's third-party supplier would charge Lillian $54 per unit, and could sell to Lillian the entire 1,000 units Lillian needs each year.

Also, if Bernard's plan is implemented, it can use the capacity currently being used to produce an input to generate additional profit of $14,000.

Assuming Lillian is adopting a financial perspective, which of the following is true?

1 point

Lillian should not follow Bernard's plan, because doing so will decrease profits by $2,000.

Lillian should follow Bernard's plan, because doing so will increase profits by $10,000.

Lillian should not follow Bernard's plan, because doing so will decrease profits by $16,000.

Lillian should not follow Bernard's plan, because doing so will decrease profits by $4,000.

5.

Question5

Joseph Company incurs per-unit costs of $11 in variable costs and $4 in fixed costs to produce its main product, which sells for $24. A new customer in the market, Katherine, offers to purchase 2,500 units at $16 each.

If the special offer is accepted, the units sold to Katherine would have to be produced with capacity that was otherwise going to be used to produce units sold to other customers.

Which of the following statements are true? (Check all that apply.)

1 point

The lost sales to other customers are relevant.

The fixed costs of $4 are irrelevant.

The sales price of $24 is irrelevant.

The lost sales to other customers is irrelevant.