1.

The constraint at Mcglathery Corporation is time on a particular machine. The company makes three products that use this machine. Data concerning those products appear below: UE BI Selling price per unit Variable cost per unit Minutes on the constraint 138.44 CR $335.15 $259.32 7.20

$228.43 $173.14 4.00

$199.18 $159.67 5.20

Assume that sufficient time is available on the constrained machine 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.) $39.51 per unit $7.60 per minute $13.82 per minute $75.83 per unit 2. Wright Company produces products I, J, and K from a single raw material input. Budgeted data for the next month follows: Product I Product J Product K Units produced 1,600 2,100 3,100 Per unit sales value at split-off $14 $19 $16 Added processing costs per unit $5 $7 $7 Per unit sales value if processed further $20 $20 $25 If the cost of the raw material input is $69,000, which of the products should be processed beyond the split-off point? Product I Product J Product K A) yes yes no B) yes no yes C) no yes no D) no yes yes Option B Option A

Option C Option D 3. Two products, IF and RI, emerge from a joint process. Product IF has been allocated $22,300 of the total joint costs of $43,000. A total of 2,900 units of product IF are produced from the joint process. Product IF can be sold at the split-off point for $10 per unit, or it can be processed further for an additional total cost of $10,900 and then sold for $12 per unit. If product IF is processed further and sold, what would be the effect on the overall profit of the company compared with sale in its unprocessed form directly after the split-off point? $5,100 less profit $23,900 more profit $17,200 more profit $31,000 less profit 4. Austin Wool Products purchases raw wool and processes it into yarn. The spindles of yarn can then be sold directly to stores or they can be used by Austin Wool Products to make afghans. Each afghan requires one spindle of yarn. Current cost and revenue data for the spindles of yarn and for the afghans are as follows: Data for one spindle of yarn: Selling price $11 Variable production cost $7 Fixed production cost (based on 4,200 spindles of yarn produced) $1 Data for one afghan: Selling price $29 Production cost per spindle of yarn $8 Variable production cost to process the yarn into an afghan $7 Avoidable fixed production cost to process the yarn into an afghan (based on 4,200 afghans produced) $3 Each month 4,200 spindles of yarn are produced that can either be sold outright or processed into afghans. If Austin chooses to produce 4,200 afghans each month, the change in the

monthly net operating income as compared to selling 4,200 spindles of yarn is: $33,600 decrease $33,600 increase $16,800 decrease $16,800 increas 5. The Tingey Company has 400 obsolete microcomputers that are carried in inventory at a total cost of $576,000. If these microcomputers are upgraded at a total cost of $130,000, they can be sold for a total of $190,000. As an alternative, the microcomputers can be sold in their present condition for $40,000. Suppose the selling price of the upgraded computers has not been set. At what selling price per unit would the company be as well off upgrading the computers as if it just sold the computers in their present condition? $425 $308 $65 $140 6. Talboe Company makes wheels which it uses in the production of children's wagons. Talboe's costs to produce 250,000 wheels annually are as follows: Direct material $ 50,000 Direct labor 75,000 Variable manufacturing overhead 37,500 Fixed manufacturing overhead 78,000 Total $240,500 An outside supplier has offered to sell Talboe similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $33,000 of annual fixed manufacturing overhead would be avoided and the facilities now being used to make the wheels would be rented to another company for $87,000 per year. If Talboe chooses to buy the wheel from the outside supplier, then the change in annual net operating income is a:

$82,500 increase $71,000 increase $50,000 increase $4,500 decrease 7. The Varone Company makes a single product called a Hom. The company has the capacity to produce 40,000 Homs per year. Per unit costs to produce and sell one Hom at that activity level are: Direct materials $31 Direct labor $21 Variable manufacturing overhead $16 Fixed manufacturing overhead $18 Variable selling expense $10 Fixed selling expense $7 The regular selling price for one Hom is $100. A special order has been received at Varone from the Fairview Company to purchase 7,900 Homs next year at 10% off the regular selling price. If this special order were accepted, the variable selling expense would be reduced by 20%. However, Varone would have to purchase a specialized machine to engrave the Fairview name on each Hom in the special order. This machine would cost $11,900 and it would have no use after the special order was filled. The total fixed costs, both manufacturing and selling, are constant within the relevant range of 30,000 to 40,000 Homs per year. Assume direct labor is a variable cost. If Varone can expect to sell 31,000 Homs next year through regular channels and the special order is accepted at 10% off the regular selling price, the effect on net operating income next year due to accepting this order would be $98,700 increase $23,100 decrease $51,900 increase $79,000 increase