Multiple Choice Select the best answer to each question. Space is provided for computations after the quantitative questions. ____ 1. (CPA) Light Company has 2,000 obsolete light fixtures that were manufactured at a cost of $30,000. If the fixtures are reworked for $10,000, they can be sold for $18,000. Alternatively, the fixtures can be sold for $3,000 to a jobber. Assuming the fixtures are reworked and sold, the opportunity cost is: a. $3,000. b. $5,000. c. $10,000. d. $30,000. ___2. (CPA) The manufacturing capacity of Jordan Companys facilities is 30,000 units of a product per year. A summary of operating results for the year ended December 31, 2010, is as follows: Revenues, 18,000 units $100 $1,800,000 Variable costs 990,000 Contribution margin 810,000 Fixed costs 495,000 Operating income $ 315,000 A foreign distributor has offered to buy 15,000 units at $90 per unit during 2011. Assume all of Jordans costs will have the same behavior patterns in 2011 as in 2010. If Jordan accepts this offer and rejects 3,000 units of business from regular customers so as not to exceed its capacity, total operating income for 2009 is: a. $855,000. b. $840,000. c. $705,000. d. $390,000. ___ 3. (CPA) Gata Co. plans to discontinue a division with a $48,000 contribution margin, and allocated fixed costs of $96,000, of which $42,000 cannot be eliminated. What is the effect on Gatas operating income of discontinuing this division? a. Increase of $48,000 b. Decrease of $48,000 c. Increase of $6,000 d. Decrease of $6,000 ____4. Which one of the following items is relevant to an equipment replacement decision? a. Original cost of the old equipment b. Disposal value of the old equipment c. Gain or loss on disposal of the old equipment d. Book value of the old equipment ____5. (CPA) Maxwell Company has an opportunity to acquire a new machine to replace one of its old machines. The new machine costs $90,000 and has an estimated useful life of five years, with a zero terminal disposal value. Variable operating costs are $100,000 per year. The old machine has a book value of $50,000 and a remaining life of five years. Its disposal value now is $5,000 but would be zero after five years. Variable operating costs are $125,000 per year. Considering the five years in total, but ignoring time value of money and income taxes, what is the difference in operating income by replacing the old machine? a. $10,000 decrease b. $15,000 decrease c. $35,000 increase d. $40,000 increase ___6. (Appendix, CMA adapted) Pleasant Valley Company makes two products, ceramic vases (V) and ceramic bowls (B). Each vase requires two pounds of direct materials and three hours of direct manufacturing labor. Each bowl requires two pounds of direct materials and one hour of direct manufacturing labor. During the next production week, 100 pounds of direct materials and 60 hours of direct manufacturing labor are available to make vases and bowls. Each pound of direct material costs $4 and each hour of direct manufacturing labor costs $10. All manufacturing overhead is fixed and is estimated to be $200 per week for this production process. Pleasant Valley sells vases for $50 each and bowls for $35 each. The objective function for total contribution margin is: a. $50V + $35B. b. $12V + $17B. c. $38V + $18B. d. $12V + $17B $200. ____7. Using the information in question 6, one of the constraints is: a. 2V + 2B 60. b. 2V + 2B $400. c. 3V + B 60. d. V + 3B 100. e. $8V + $8B 600. (