Question 1

Phillippe Inc. manufactures A and B from a joint process (cost = $91,000). Six thousand pounds of A can be sold at split-off for $21 per pound or processed further at an additional cost of $23,000 and then sold for $26 per pound. If Phillippe decides to process A beyond the split-off point, operating income will:

Multiple Choice

• increase by $13,000.

• increase by $35,000.

• decrease by $13,000.

• decrease by $35,000.

• increase by $7,000.

Question 2

A piece of equipment costs $34,000, and is expected to generate $9,000 of annual cash revenues and $1,500 of annual cash expenses. The disposal value at the end of the estimated 12-year life is $3,000. Ignoring income taxes, the payback period is:

Multiple Choice

• 3.78 years.

• 4.13 years.

• 4.53 years.

• 7.16 years.

• None of these options is correct.

Question 3

Miracle Green Corporation operates two garden supply stores: A and B. The following information relates to store A:

Sales revenue	$	980,000
Variable operating expenses		472,000
Fixed expenses:
Traceable to A and controllable by A		315,000
Traceable to A and controllable by others		128,000

A's segment profit margin is:

Multiple Choice

• $513,000.

• $380,000.

• $508,000.

• $65,000.

• $193,000.

Question 4

Grands Auto Northern Division is currently purchasing a part from an outside supplier. The company's Southern Division, which has excess capacity, makes and sells this part for external customers at a variable cost of $31 and a selling price of $40. If Southern begins sales to Northern, it (1) will use the general transfer-pricing rule and (2) will be able to reduce variable cost on internal transfers by $4. On the basis of this information, Southern would establish a transfer price of:

Multiple Choice

• $27.

• $31.

• $36.

• $40.

• None of the answers is correct.

Question 5

Marshall Welding Company has two service departments (Cafeteria and Human Resources) and two production departments (Machining and Assembly). The number of employees in each department follows.

Cafeteria	30
Human Resources	32
Machining	70
Assembly	180

Marshall Welding uses the step-down method of cost allocation and allocates cost on the basis of employees. Human Resources cost amounts to $1,250,000, and the department provides more service to the firm than Cafeteria. How much Human Resources cost would be allocated to Assembly? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar.)

Multiple Choice

• $0.

• $348,628.

• $312,500.

• $803,571.

• None of the answers is correct.