Quiz 7 PDF

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Quiz 7 - Relevant cost 1. Stephenson Company is trying to decide which one of two contracts it will accept. The costs and revenues associated with each are listed below:

The equipment was purchased last year and has no resale value. Which of these amounts is relevant for the selection of one contract over another? A. Contract revenue and labour costs B. Materials, consulting advice and allocated overhead C. Cost of consulting advice and allocated overhead D. Contract revenue, labour costs and depreciation on equipment 2. ServicePro provides two kinds of services. During the most recent accounting period, the two service lines produced the following operating results:

If the company stops providing Service 2: A. The company's income will decrease by $1,500 per year. B. The company's income will increase by $1,500 per year. C. The company's income will decrease by $3,500 per year. D. The company's income will increase by $3,500 per year.

3. Outdoor Living Company has just received a special order for 500 hammocks. Outdoor Living has sufficient idle machinery capacity to accept the order. However, in accepting the order the company will increase its variable manufacturing costs. Which type of cost is considered a sunk cost to Outdoor Living's decision of whether to accept or reject the special order? A. Raw materials to make the 500 hammocks B. Labour cost to make the 500 hammocks C. Depreciation on equipment that would be used to make the hammocks D. Materials handling cost 4. Breezy Company is disposing of equipment that was originally purchased for £600,000 and has £240,000 of accumulated depreciation to date. The same equipment would cost £800,000 to replace. What is the total amount of sunk cost? A. £240,000 B. £360,000 C. £840,000 D. £800,000 5. The O.T. Company makes 35,000 motors to be used in the production of its sewing machines. The cost per motor at this level of activity is:

Direct materials Direct labour Variable manufacturing overhead Fixed manufacturing overhead

£4.50 £4.60 £3.75 £3.45

An outside supplier has offered to supply all the motors the company needs for £15 each. If O.T. Company decided not to make the motors, there would be no other use for the production facilities and none of the fixed manufacturing overhead cost could be avoided. If O.T. Company decides to continue making the motor, how much higher or lower would net operating income be than if the motors are purchased from the outside supplier? A. B. C. D.

£75,250 higher. £45,500 lower. £311,500 higher. £120,750 higher....