1.

2.

3.

A company has a standard cost system in which fixed and variable manufacturing overhead costs
are applied to products on the basis of direct labor-hours. The company's choice of the
denominator level of activity affects the Variable component of the predetermined overhead rate.
True
False
The budget variance represents the difference between the actual fixed manufacturing overhead
cost incurred during a period and the budgeted fixed manufacturing overhead cost.
True
False
A volume variance and an efficiency variance are computed for fixed manufacturing overhead
costs.
True
False

4.

At the end of the year, actual manufacturing overhead costs were $210,000 and applied manufacturing
overhead costs were $146,400. If the denominator activity for the year was 20,000 machine-hours, and if
24,000 standard machine-hours were allowed for the year's production, the predetermined overhead rate per
machine-hour was: (Round your answer to 2 decimal places.)
$6.65
$6.10
$9.00
$9.50

5.

Tidd Corporation makes a product with the following standard costs:

Inputs
Direct materials
Direct labor
Variable overhead

Standard Quantity or
Hours
4.5 grams
0.7 hours
0.7 hours

Standard Price or
Rate
$5.00 per gram
$11.00 per hour
$5.00 per hour

Standard Cost
Per Unit
$22.50
$7.70
$3.50

The company reported the following results concerning this product in November.
Originally budgeted output
Actual output
Raw materials used in production
Purchases of raw materials
Actual direct labor-hours
Actual cost of raw materials purchases
Actual direct labor cost
Actual variable overhead cost

9,600
9,700
44,800
47,290
7,860
$132,430
$125,123
$29,896

units
units
grams
grams
hours

The company applies variable overhead on the basis of direct labor-hours. The direct materials price variance is
computed when the materials are purchased.

The variable overhead efficiency variance for November is:

$5,350 U
$5,350 F
$6,099 F
$6,099 U

6.

Franklin Glass Works uses a standard cost system in which manufacturing overhead is applied on
the basis of standard direct labor-hours. Each unit requires three standard hours of direct labor for
completion. The denominator activity for the year was based on budgeted production of 230,000
units. Total overhead was budgeted at $930,000 for the year, and the fixed manufacturing
overhead rate was $1.20 per direct labor-hour. The actual data pertaining to the manufacturing
overhead for the year are presented below:

Actual production
Actual direct labor-hours
Actual variable manufacturing overhead
Actual fixed manufacturing overhead

228,000 units
470,000 direct labor-hours
$382,000
$578,000

The standard hours allowed for actual production for the year total:
684,000
224,100
495,000
690,000

7.

The Wright Company has a standard costing system. The following data are available for
September:

Actual quantity of direct materials purchased

Standard price of direct materials
Material price variance

60,000 pounds
$
8 per pound
$6,000 unfavorable

The actual price per pound of direct materials purchased in September is: (Round your answer to 2 decimal
places.)
$8.00
$7.88
$8.12
$8.10
8.

Hurren Corporation makes a product with the following standard costs:

Inputs
Direct materials
Direct labor
Variable overhead

Standard Quantity or
Hours
3.5 grams
0.7 hours
0.7 hours

Standard Price or
Rate
$7.00 per gram
$10.00 per hour
$7.00 per hour

Standard Cost
Per Unit
$24.50
$7.00
$4.90

The company reported the following results concerning this product in June.
Originally budgeted output
Actual output
Raw materials used in production
Actual direct labor-hours
Purchases of raw materials
Actual price of raw materials purchased
Actual direct labor rate
Actual variable overhead rate

8,400
8,300
28,290
5,500
30,900
$7.10
$10.90
$6.70

units
units
grams
hours
grams
per gram
per hour
per hour

The company applies variable overhead on the basis of direct labor-hours. The direct materials price variance is
computed when the materials are purchased.

The labor rate variance for June is: (Round your intermediate calculations to 2 decimal places.)
$5,229 F
$5,229 U
$4,950 U
$4,950 F

9.

The Geurtz Company uses standard costing. The company makes and sells a single product called
a Roff. The following data are for the month of August:

Actual cost of direct material purchased and used: $151,040

Material price variance: $9,440 unfavorable
Total materials variance: $36,440 unfavorable
Standard cost per pound of material: $6
Standard cost per direct labor-hour: $6
Actual direct labor-hours: 14,580 hours
Labor efficiency variance: $4,200 favorable
Standard number of direct labor-hours per unit of Roff: 4 hours
Total labor variance: $1,632 unfavorable

The actual direct labor rate per hour was:

$6.40
$6.40
$24.00
$6.00

10. Nutall Corporation is considering dropping product N28X. Data from the company's accounting
system appear below:

Sales
Variable expense
Fixed manufacturing expenses
Fixed selling and administrative expense

$ 760,000
$ 351,000
$ 259,000
$ 207,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further
investigation has revealed that $200,500 of the fixed manufacturing expenses and $115,500 of the fixed selling and
administrative expenses are avoidable if product N28X is discontinued.

Required:
a.
According to the company's accounting system, what is the net operating income earned by product N28X?
(Input the amount as a positive value. Omit the "$" sign in your response.)

Net operating income/Net

operating loss

b-1.
What would be the effect on the company's overall net operating income of dropping product N28X? (Input
the amount as a positive value. Omit the "$" sign in your response.)

Net operating income would be by (increase/ decrease)$

b-2.
Should the product be dropped?

Yes
No

11. Costs associated with two alternatives, code-named Q and R, being considered by Corniel Corporation are listed
below:

Supplies costs

Alternative Q
$ 61,000

Alternative R
$ 47,000

Power costs
Inspection costs
Assembly costs

$ 28,000
$ 12,000
$ 21,000

$ 28,000
$ 22,000
$ 12,000

Required:
a. Which costs are relevant and which are not relevant in the choice between these two alternatives?

Supplies costs
Power costs
Inspection costs
Assembly costs

(relevant/not relevant)
(relevant/not relevant)
(relevant/not relevant)
(relevant/not relevant)

b.
What is the differential cost of Alternative R over Alternative Q? (Negative amount should be indicated by a
minus sign. Omit the "$" signs in your response.)

Differential cost

12. Block Corporation makes three products that use the current constraint, which is a particular type of machine.
Data concerning those products appear below:

Selling price per unit

Variable cost per unit
Time on the constraint (minutes)

FX
$ 326.23
$ 251.99
3.40

JR
$ 543.49
$ 420.80
7.40

ZZ
$ 503.00
$ 397.65
8.00

Required:
a.
Rank the products in order of their current profitability from the most profitable to the least profitable (Most
profitable = 1, Least profitable = 3) (Round your intermediate calculations to 2 decimal places.)

Ranking
FX
JR
ZZ

(1/2/3)
(1/2/3)
(1/2/3)

b.
Assume that sufficient constraint time is available to satisfy demand for all but the least profitable product. Up
to how much should the company be willing to pay to acquire more of the constrained resource? (Round your
intermediate calculations and final answer to 2 decimal places. Omit the "$" sign in your response.)

Maximum amount

13. Silmon Corporation makes a product with the following standard costs:

Inputs
Direct materials
Direct labor
Variable overhead

Standard Quantity
Standard Price
or Hours
or Rate
6.1 grams
$ 7.00 per gram
0.4 hours
$ 14.00 per hour
0.4 hours
$ 2.00 per hour

In June the company produced 5,400 units using 34,190 grams of the direct material and 2,700 direct labor-hours.
During the month the company purchased 25,300 grams of the direct material at a price of $6.80 per gram. The
actual direct labor rate was $14.60 per hour and the actual variable overhead rate was $1.90 per hour. The materials
price variance is computed when materials are purchased. Variable overhead is applied on the basis of direct laborhours.

Required:
Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price
variance for materials is recognized at point of purchase: (Input all amounts as positive values. Do not round
intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required. Indicate the
effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e.,
zero variance). Omit the "$" sign in your response.)

a. Direct materials quantity variance

b. Direct materials price variance

c. Direct labor efficiency variance

e. Direct labor rate variance

d. Variable overhead efficiency variance

f. Variable overhead rate variance

(F/U/None)
(F/U/None)
(F/U/None)
(F/U/None)
(F/U/None)
(F/U/None)

14. Portland Company's Ironton Plant produces precast ingots for industrial use. Carlos Santiago, who was recently
appointed general manager of the Ironton Plant, has just been handed the plants contribution format income
statement for October. The statement is shown below:

Sales
(7,000
ingots)

Budgeted

Actual

310,000

310,000

Variable
expenses:
Variable
cost of goods
sold*
Variable
selling
expenses

110,810

131,685

25,000

25,000

Total
variable
expenses

135,810

156,685

Contributio
n margin

174,190

153,315

66,000

66,000

91,000

91,000

157,000

157,000

Fixed
expenses:
Manufact
uring
overhead
Selling
and
administrativ
e
Total fixed
expenses
Net
operating
income
(loss)

17,190

(3,685)

*Contains direct materials, direct labor, and variable manufacturing overhead.

Mr. Santiago was shocked to see the loss for the month, particularly because sales were exactly as budgeted. He
stated, "I sure hope the plant has a standard cost system in operation. If it doesn't, I won't have the slightest idea of
where to start looking for the problem."

The plant does use a standard cost system, with the following standard variable cost per ingot:

Direct materials
Direct labor
Variable manufacturing
overhead

Standard
Standard Price
Quantity or
or Rate
Hours
2.70 per
4.1 pounds $
pound
0.4 hours
$8.20 per hour
0.4 hours*

$3.70 per hour

Standard Cost
$

11.07
3.28
1.48

Total standard variable cost

15.83

*Based on machine-hours.
During October the plant produced 7,000 ingots and incurred the following costs:
a.
Purchased 33,700 pounds of materials at a cost of $3.15 per pound. There were no raw materials in inventory at
the beginning of the month.
b.
Used 28,500 pounds of materials in production. (Finished goods and work in process inventories are insignificant
and can be ignored.)
c. Worked 3,400 direct labor-hours at a cost of $7.90 per hour.
d.
Incurred a total variable manufacturing overhead cost of $12,710 for the month. A total of 3,100 machine-hours
was recorded.

It is the companys policy to close all variances to cost of goods sold on a monthly basis.
Required:
1. Compute the following variances for October:
a.
Direct materials price and quantity variances. (Input all amounts as positive values. Leave no cells blank
- be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for
favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in
your response.)

Materials price variance

Materials quantity variance

$
$

(U/F/None)
(U/F/None)

b.
Direct labor rate and efficiency variances. (Input all amounts as positive values. Leave no cells blank - be
certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for
favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in
your response.)

Labor rate variance

Labor efficiency variance

$
$

(U/F/None)
(U/F/None)

c.
Variable overhead rate and efficiency variances. (Input all amounts as positive values. Do not round your
intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required. Indicate
the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no
effect (i.e., zero variance). Omit the "$" sign in your response.)

Variable overhead rate variance

(U/F/None)

Variable overhead efficiency variance

(U/F/None)

2a.
Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable
variance for October. (Input the amount as a positive value. Leave no cells blank - be certain to enter "0"
wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for
unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)

Net variance

(U/F/None)

3.
Pick out the two most significant variances that you computed in (1) above. (You may select more than one
answer. Single click the box with the question mark to produce a check mark for a correct answer and
double click the box with the question mark to empty the box for a wrong answer.)

Materials price variance

Labor efficiency variance
Variable overhead efficiency variance
Labor rate variance
Variable overhead rate variance
Materials quantity variance

15. Barberry, Inc., manufactures a product called Fruta. The company uses a standard cost system and has
established the following standards for one unit of Fruta:

Standard
Quantity

Standard Price
or Rate
per
Direct materials
1.6 pounds $ 5.60
pound
per
Direct labor
0.5 hours $11.70
hour
per
Variable manufacturing overhead 0.5 hours $ 2.40
hour

Standard Cost
$

8.96
5.85
1.20

16.01

During June, the company recorded this activity related to production of Fruta:
a.
The company produced 4,700 units during June.
b. A total of 12,640 pounds of material were purchased at a cost of $66,992.
c.
There was no beginning inventory of materials; however, at the end of the month, 2,300 pounds of material
remained in ending inventory.
d.
The company employs 10 persons to work on the production of Fruta. During June, they worked an average of
185 hours at an average rate of $12.30 per hour.
e.
Variable manufacturing overhead is assigned to Fruta on the basis of direct labor-hours. Variable manufacturing
overhead costs during June totaled $3,700.

The company's management is anxious to determine the efficiency of Fruta production activities.
Required:
1. For direct materials:
a.
Compute the price and quantity variances. (Input all amounts as positive values. Do not round
intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required. Indicate
the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no
effect (i.e., zero variance). Omit the "$" sign in your response.)

Materials price variance

Materials quantity variance

(U/F/None)

(U/F/None)

b.
The materials were purchased from a new supplier who is anxious to enter into a long term purchase
contract. Would you recommend that the company sign the contract?

Yes
No
2. For labor employed in the production of Fruta:
a.
Compute the rate and efficiency variances. (Input all amounts as positive values. Leave no cells blank be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for
favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in
your response.)

Labor rate variance

Labor efficiency variance

(U/F/None)

(U/F/None)

b.
In the past, the 10 persons employed in the production of Fruta consisted of 4 senior workers and 6
assistants. During June, the company experimented with 5 senior workers and 5 assistants. Would you
recommend that the new labor mix be continued?

Yes
No
3a.
Compute the variable overhead rate and efficiency variances. (Input all amounts as positive values. Do not
round intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required.
Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for
no effect (i.e., zero variance). Omit the "$" sign in your response.)

Variable overhead rate variance

Variable overhead efficiency variance

(U/F/None)

(U/F/None)

16. It certainly is nice to see that small variance on the income statement after all the trouble weve had lately in
controlling manufacturing costs, said Linda White, vice president of Molina Company. The $36,150 overall
manufacturing variance reported last period is well below the 4% limit we have set for variances. We need to
congratulate everybody on a job well done.

The company produces and sells a single product. The standard cost card for the product follows:

Standard Cost CardPer Unit

Direct materials, 3.50 yards at $3.20 per yard
Direct labor, 2.7 direct labor-hours at $10.00 per direct
labor-hour
Variable overhead, 2.7 direct labor-hours at $2.60 per
direct labor-hour
Fixed overhead, 2.7 direct-labor hours at $5.00 per
direct labor-hour
Standard cost per unit

11.20
27.00
7.02
13.50

58.72

The following additional information is available for the year just completed:

a. The company manufactured 30,000 units of product during the year.

b.
A total of 103,000 yards of material was purchased during the year at a cost of $3.45 per yard. All of this
material was used to manufacture the 30,000 units. There were no beginning or ending inventories for the year.

c. The company worked 83,000 direct labor-hours during the year at a cost of $9.90 per hour.
d.
Overhead cost is applied to products on the basis of standard direct labor-hours. Data relating to manufacturing
overhead costs follow:

Denominator activity level (direct labor-hours)

Budgeted fixed overhead costs
Actual fixed overhead costs
Actual variable overhead costs

80,000
$ 400,000
$ 396,600
$ 224,100

Required:
1.
Compute the direct materials price and quantity variances for the year. (Input all amounts as positive values.
Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by
selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the
"$" sign in your response.)

Direct materials quantity variance

Direct materials price variance

$
$

(U/F/None)
(U/F/None)

2.
Compute the direct labor rate and efficiency variances for the year. (Input all amounts as positive values.
Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by
selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the
"$" sign in your response.)

Direct labor efficiency variance

Direct labor rate variance

3. For manufacturing overhead, compute the following:

$
$

(U/F/None)
(U/F/None)

a.
The variable overhead rate and efficiency variances for the year. (Input all amounts as positive values. Leave
no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting
"F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign
in your response.)

Efficiency variance

Rate variance

(U/F/None)
(U/F/None)

b.
The fixed overhead budget and volume variances for the year. (Input all amounts as positive values. Leave no
cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting
"F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign
in your response.)

Volume variance

Budget variance

(U/F/None)
(U/F/None)

17. Sport Luggage Inc. makes high-end hard-sided luggage for sports equipment. Data concerning three of the
companys most popular models appear below.

Selling price per unit

Variable cost per unit
Plastic injection molding machine processing
required to produce one unit
Pounds of plastic pellets per unit

time

Ski
Golf
Fishing
Vault Caddy
Quiver
$250
$320
$ 235
$110
$200
$ 135
13
minutes 11 minutes 5 minutes
14
7 pounds 6 pounds
pounds

Required:
1a.
The total time available on the plastic injection molding machine is the constraint in the production process.
What is contribution margin per unit of the constrained resources for Ski Vault, Golf Caddy and Fishing
Quiver? (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Ski Vault
Contribution margin

per minute

Golf Caddy
$

per minute

Fishing Quiver
$
per minute

1b. Which product would be the most profitable use of this constraint?
Fishing Quiver
Ski Vault
Golf Caddy
1c. Which product would be the least profitable use of this constraint?
Fishing Quiver
Ski Vault
Golf Caddy
2a.
A severe shortage of plastic pellets has required the company to cut back its production so much that the plastic
injection molding machine is no longer the bottleneck. Instead, the constraint is the total available pounds of
plastic pellets. What is contribution margin per unit of the constrained resources for Ski Vault, Golf Caddy and
Fishing Quiver? (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Ski Vault
Contribution margin

Golf Caddy
per pound

per pound

Fishing Quiver
$
per pound

2b. Which product would be the most profitable use of this constraint?
Golf Caddy
Ski Vault
Fishing Quiver
2c. Which product would be the least profitable use of this constraint?
Golf Caddy
Ski Vault
Fishing Quiver
3. Which product has the largest unit contribution margin?
Ski Vault
Fishing Quiver
Golf Caddy

18. Georgian Ambience Ltd. makes fine colonial reproduction furniture. Upholstered furniture is one of its major
product lines and the bottleneck on this production line is time in the upholstery shop. Upholstering is a craft
that takes years of experience to master and the demand for upholstered furniture far exceeds the companys
capacity in the upholstering shop. Information concerning three of the companys upholstered chairs appears
below:

Selling price per unit

Variable cost per unit
Upholstery shop time required to produce one unit

Gainsborough
Leather
Armchair
Library Chair
$ 1,328
$ 1,915
$ 800
$ 1,200
8 hours
13 hours

Chippendale
Fabric
Armchair
$ 1,550
$ 1,100
5 hours

Required:
1.
More time could be made available in the upholstery shop by asking the employees who work in this shop to
work overtime. Assuming that this extra time would be used to produce Leather Library Chairs, up to how much
should the company be willing to pay per hour to keep the upholstery shop open after normal working hours?
(Omit the "$" sign in your response.)

Maximum amount payable per hour

2.

A small nearby upholstering company has offered to upholster furniture for Georgian Ambience at a fixed
charge of $52 per hour. The management of Georgian Ambience is confident that this upholstering companys
work is high quality and their craftsmen should be able to work about as quickly as Georgian Ambiences own
craftsmen on the simpler upholstering jobs such as the Chippendale Fabric Armchair.

a. Should management accept this offer?

Yes
No

19. Glade Company produces a single product. The costs of producing and selling a single unit of this product at
the companys current activity level of 8,400 units per month are:

Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Variable selling and administrative expenses
Fixed selling and administrative expenses

$
$
$
$
$
$

1.90
3.00
.80
4.35
1.00
2.00

The normal selling price is $21 per unit. The companys capacity is 11,100 units per month. An order has been
received from a potential customer overseas for 2,700 units at a price of $18.00 per unit. This order would not affect
regular sales.

Required:
1.
If the order is accepted, by how much will monthly profits increase or decrease? (The order would not change

the companys total fixed costs.) (Input the amount as a positive value. Omit the "$" sign in your response.)

Monthly profits would (increase or decrease) by

2.

Assume the company has 500 units of this product left over from last year that are inferior to the current model.
The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a
minimum selling price for these units? (Round your answer to 2 decimal places. Omit the "$" sign in your
response.)

Relevant cost per unit

20. Pietarsaari Oy, a Finnish company, produces cross-country ski poles that it sells for 34 a pair. (The Finnish
unit of currency, the euro, is denoted by .) Operating at capacity, the company can produce 51,000 pairs of ski
poles a year. Costs associated with this level of production and sales are given below:

Per Pair
Direct
materials
Direct
labor
Variable
manufactu
ring
overhead
Fixed
manufactu
ring
overhead
Variable
selling
expense
Fixed
selling
expense
Total
cost

Total

12

612,000

204,000

51,000

204,000

51,000

204,000

26

1,326,000

Required:
1.
The Finnish army would like to make a one-time-only purchase of 9,200 pairs of ski poles for its mountain
troops. The army would pay a fixed fee of 5 per pair, and in addition it would reimburse the Pietarsaari Oy
company for its unit manufacturing costs (both fixed and variable). Due to a recession, the company would
otherwise produce and sell only 41,800 pairs of ski poles this year. (Total fixed manufacturing overhead cost
would be the same whether 41,800 pairs or 51,000 pairs of ski poles were produced.) The company would not
incur
its
usual
variable
selling
expenses
with
this
special
order.

If the Pietarsaari Oy company accepts the armys offer, by how much would net operating income increase
or decrease from what it would be if only 41,800 pairs of ski poles were produced and sold during the year?
(Input the amount as a positive value. Omit the "" sign in your response.)

(Decrease or increase) in net operating income

2.
Assume the same situation as described in (1) above, except that the company is already operating at capacity
and could sell 51,000 pairs of ski poles through regular channels. Thus, accepting the armys offer would require
giving up sales of 9,200 pairs at the normal price of 34 a pair. If the armys offer is accepted, by how much will
net operating income increase or decrease from what it would be if the 9,200 pairs were sold through regular
channels? (Input the amount as a positive value. Omit the "" sign in your response.)

(Decrease or increase) in net operating income

21. Barker Company has a single product called a Zet. The company normally produces and sells 84,000 Zets each
year at a selling price of $42 per unit. The companys unit costs at this level of activity are given below:

Direct materials
Direct labor
Variable manufacturing
overhead
Fixed manufacturing
overhead
Variable selling expenses

4.80
9.00

($756,000
total)

3.70

Fixed selling expenses

Total cost per unit

8.50
9.00

5.50
$

($462,000
total)

40.50

A number of questions relating to the production and sale of Zets are given below. Each question is
independent.
Required:
1.
Assume that Barker Company has sufficient capacity to produce 117,600 Zets each year without any increase in
fixed manufacturing overhead costs. The company could increase sales by 40% above the present 84,000 units
each year if it were willing to increase the fixed selling expenses by $120,000.

a. Calculate the incremental net operating income (Negative amount should be indicated with a minus sign. Do
not round intermediate calculations. Omit the "$" sign in your response.)
$

Incremental net operating income

b. Would the increased fixed selling expenses be justified?

No
Yes
2.
Assume again that Barker Company has sufficient capacity to produce 117,600 Zets each year. The company
has an opportunity to sell 33,600 units in an overseas market. Import duties, foreign permits, and other special
costs associated with the order would total $20,160. The only selling costs that would be associated with the
order would be $1.50 per unit shipping cost. Compute the per unit break-even price on this order. (Do not
round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your
response.)

Break-even price per unit

3.
One of the materials used in the production of Zets is obtained from a foreign supplier. Civil unrest in the
suppliers country has caused a cutoff in material shipments that is expected to last for three months. Barker
Company has enough material on hand to operate at 25% of normal levels for the three-month period. As an
alternative, the company could close the plant down entirely for the three months. Closing the plant would
reduce fixed manufacturing overhead costs by 35% during the three-month period and the fixed selling expenses
would continue at two-thirds of their normal level. What would be the impact on profits of closing the plant for
the three-month period? (Input the amount as a positive value. Round your intermediate calculations of
units produced and sold to the nearest whole number. Do not round your other intermediate calculations.
Omit the "$" sign in your response.)

Net (advantage/disadvantage) of closing the plant

4.

The company has 500 Zets on hand that were produced last month and have small blemishes. Due to the
blemishes, it will be impossible to sell these units at the normal price. If the company wishes to sell them
through regular distribution channels, what unit cost figure is relevant for setting a minimum selling price?
(Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Relevant unit cost

5.
An outside manufacturer has offered to produce Zets and ship them directly to Barkers customers. If Barker
Company accepts this offer, the facilities that it uses to produce Zets would be idle; however, fixed
manufacturing overhead costs would continue at 30%. Because the outside manufacturer would pay for all
shipping costs, the variable selling expenses would be reduced by 60%. Compute the unit cost that is relevant
for comparison to the price quoted by the outside manufacturer. (Do not round intermediate calculations.
Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Total avoidable unit cost