Question

15. Swifty Corporation produces face cream. Each bottle of face cream costs $6 to produce and can be sold for $9. The bottles can be sold as is, or processed further into sunscreen with an additional cost of $10 each. Swifty Corporation could sell the sunscreen bottles for $14 each.

Face cream must be processed further because it increases profit by $3 each.

Face cream must not be processed further because costs increase more than revenue.

Face cream must be processed further because its profit is $4 each.

Face cream must not be processed further because it decreases profit by $10 each.

17. Sheridan Company gathered the following data about the three products that it produces:

Product		Present Sales Value		Estimated Additional Processing Costs		Estimated Sales if Processed Further
A		$13600		$8800		$23400
B		15600		5800		20400
C		12600		3800		18400

Which of the products should not be processed further?

Product A

Product B

Product C

Products A and C

20. Concord Corporation is considering the replacement of a piece of equipment with a newer model. The following data has been collected:

	Old Equipment		New Equipment
Purchase price	$145000		$240000
Accumulated depreciation	58000		- 0 -
Annual operating costs	192000		153000

If the old equipment is replaced now, it can be sold for $39100. Both the old equipment’s remaining useful life and the new equipment’s useful life is 5 years.

Which of the following amounts is irrelevant to the replacement decision?

$192000

$240000

$39100

$87000

Please answer all 3 questions! Thank you!

Answer 1

15.
Answer is b. Face cream must not be processed further because costs increase more than revenue.
Since Incremental Revenue $5 i.e. ($14-9) is lower than additional costs $10

17.

	Product A	Product B	Product C
Present Sales Value	$            13,600	$            15,600	$           12,600
Sales value if processed further	$            23,400	$            20,400	$           18,400
Incremental Revenue	$              9,800	$              4,800	$             5,800
Additional Costs	$              8,800	$              5,800	$             3,800
Incremental Profit (Loss)	$              1,000	$            (1,000)	$             2,000

Answer is b. Products B should not be processed further

18.
Answer is d. $87000 i.e. Net Book value of old equipment