16) John\'s 8-year-old Chevrolet Trail Blazer requires repairs estimated at $7,0

Question

16) John's 8-year-old Chevrolet Trail Blazer requires repairs estimated at $7,000 to make it road worthy again. His wife, Sherry, suggested that he should buy a 5-year-old used Jeep Grand Cherokee instead for $7,000 cash. Sherry estimated the following costs for the two cars Trail Blazer Grand Cherokee Acquisition cost $30,000 $7,000 $7,000- Repairs Annual operating costs (Gas, maintenance, insurance) $2,580 $1,700 What should John do? What are his savings in the first year? A) Buy the Grand Cherokee; $8,700 Fix the Trail Blazer; $4,380 Buy the Grand Cherokee; $880 D) Fix the Trail Blazer; $7,247 One-time-only special orders should only be accepted if A) incremental revenues exceed incremental costs B) differential revenues exceed variable costs C) incremental revenues exceed fixed costs D) total revenues exceed total costs 17) When deciding to accept a one-time-only special order from a wholesaler, management should A) consider the sunk costs and opportunity costs B) not consider the special order's impact on future prices of their products C) determine whether excess capacity is available D) verify past design costs for the product 18) 19) A product cost is composed of the following: Direct materials $11 Direct labor Manufacturing overhead $8 S3 The product sells for $40 and a 15% commission is paid to a salesperson for every unit sold. Management accountants also estimate that storage cost per unit averages S0.75 per unit. What is the full cost of the product? A) S14 B) $22 C) $28.75 D) $28.00

Explanation / Answer

Ans. 16 C          Buy the Grand Cherokee; $880 *Calculation: (7000 + 2580) - (7000 + 1700) 9580 - 8700 880 Ans. 17 A     Incremental revenues exceed incremental costs. Ans.18 D    Verify past design costs for the product. Ans.19 C   $28.75 *Calculation: Direct material 11 Direct labor 3 Manufacturing overhead 8 Sells commission (40 * 15%) 6 Storage cost per unit 0.75 full cost 28.75

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