Question 1: Borderbooks Company uses activity-based costing. The company produces soft and hard-cover books. The estimated costs and expected activity for each of the activity pools follow:
Activity Estimate Expected Activity
Cost Pool Cost Hard-Cover Soft-Cover Total
Activity 1 $15,675 800 300 1,200
Activity 2 $11,900 500 200 700
Activity 3 $27,600 800 400 1,200
The activity rate for activity 3 is closest to
Question 2: Peirzynski Manufacturing Corporation produces a single product, the Utility Knife. Budgeted amounts for the coming year are as follows:
Revenues (20,000 units at $12 each) $240,000
Direct material 40,000
Direct labor 70,000
Variable manufacturing overhead 50,000
Fixed manufacturing overhead 30,000
Net income $50,000
Podsednik Company has offered to purchase 1,500 units of a special edition of the utility knife from Peirzynski at a price of $11.50 per unit. This special edition will have additional variable costs of $0.25 per unit. Peirzynski has the capacity to produce this order and it will not affect any of their other operations.
What is the incremental revenue associated with accepting this special order?
Question 3: A project with an initial cost of $600,000 will generate no returns in the first two years of operation and returns of $300,000 per year in Years 3, 4, and 5. If taxes can be ignored and the required rate of return is 10%, what is the net present value of the project (pick the closest answer)?
Question 4: A company has $8.00 per unit in variable costs and $3.00 per unit in fixed costs at a volume of 50,000 units. If the company uses cost plus pricing, which of the following is true?
A The company should use a unit cost of $11.00 per unit only at a volume of 50,000 units
B The company should use a unit cost of $11.00 at all volumes
C The company should use a unit cost of $11.00 as long as it stays within the relevant range of volume
D There is no volume at which the company should use a unit volume of 50,000
Question 5: Anderson Manufacturing makes a single product. Budget information regarding the current period is given below:
Revenue(100,000 units at $8.00) $800,000
Direct labor 150,000
Direct labor 125,000
Variable manufacturing overhead 235,000
Fixed manufacturing overhead 110,000
Net income $180,000
Dye Company approaches Anderson with a special order for 15,000 units at a price of $7.50 per unit. Variable costs will be the same as the current production and accepting the special order will not have any impact on the rest of the company’s orders. However, Anderson is operating at capacity and will incur an additional $50,000 in fixed manufacturing overhead if the order is accepted.
What is the incremental cost associated with accepting the special order?