36. Soar Incorporated is considering eliminating its mountain bike division, whi
ID: 2600254 • Letter: 3
Question
36. Soar Incorporated is considering eliminating its mountain bike division, which reported an operating loss for the recent year of $3,000. The division sales for the year were $1,057,000 and the variable costs were $860,000. The fixed costs of the division were $200,000. If the mountain bike division is dropped, 30% of the fixed costs allocated to that division could be eliminated. The impact on operating income for eliminating this business segment would be:
Multiple Choice
$197,000 increase
$57,000 decrease
$137,000 decrease
$197,000 decrease
$60,000 decrease
37. Aloan Co. provides the following sales forecast for the next three months:
The company wants to end each month with ending finished goods inventory equal to 20% of the next month’s sales. Finished goods inventory on December 31 is 400 units. The budgeted production units for February are:
Multiple Choice
3,100 units.
3,280 units.
3,900 units.
4,000 units.
2,920 units.
38. Fletcher Company collected the following data regarding production of one of its products. Compute the direct labor rate variance.
Multiple Choice
$79,950 favorable.
$69,750 unfavorable.
$10,200 unfavorable.
$79,950 unfavorable.
$69,750 favorable.
39. Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $2.50 per unit. Bluebird currently produces and sells 75,000 units at $6.50 each. This level represents 80% of its capacity. These bird feeders would be marketed under the wholesaler’s name and would not affect Bluebird’s sales through its normal channels. Production costs for these units are $3.65 per unit, which includes $2.00 variable cost and $1.65 fixed cost. If Bluebird accepts this additional business, the effect on net income will be:
Multiple Choice
$37,500 increase.
$7,500 increase.
$30,000 decrease.
$17,250 decrease.
$30,000 increase.
January February March Sales units 2,000 3,100 4,000Explanation / Answer
36.
Kept
Eliminated
Net Increase/Decrease
Sales
$ 1,057,000
-
Variable cost
$ 860,000
-
Fixed cost
$ 200,000
$ 140,000
Loss
$ (3,000)
$ (140,000)
$ (137,000)
Option “3rd $ 137,000 decrease is correct answer”
37.
Production Budget
January
February
March
Sales units
2,000
3,100
4,000
Less: Beginning Inventory
400
620
Add: Finishing Inventory
620
800
Total Production unit
2,220
3,280
Option “ 2nd 3,280 units” is correct answer.
38.
Total direct labor variance = (Actual Rate x Actual Hour) – (Standard Rate x Standard Hour)
= ($ 946,950) – ($ 12.75 x 34,000 x 2)
= $ 946,950 - $ 867000 = $ 79,950 Unfavorable
Hence option “4th $ 79,950 Unfavorable” is correct answer.
39.
Fixed cost, which is already incurred, will not be taken in to consideration for new order.
Hence the entire contribution is profit.
Increase in income = Sales – variable cost = ($ 2.50 - $ 2) x 15,000 = $ 0.5 x 15,000 = $ 7,500
Hence option “2nd $ 7,500 increase” is correct answer.
Kept
Eliminated
Net Increase/Decrease
Sales
$ 1,057,000
-
Variable cost
$ 860,000
-
Fixed cost
$ 200,000
$ 140,000
Loss
$ (3,000)
$ (140,000)
$ (137,000)
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