Question

33)Walters manufactures a specialty food product that can currently be sold for $21.90 per unit and has 19,900 units on hand. Alternatively, it can be further processed at a cost of $11,900 and converted into 11,900 units of Deluxe and 5,900 units of Super. The selling price of Deluxe and Super are $31.10 and $19.90, respectively. The incremental net income of processing further would be:

Multiple Choice

·       $39,790.

·       $51,690.

·       $17,900.

·       $43,900.

·       $11,900.

34)Soar Incorporated is considering eliminating its mountain bike division, which reported an operating loss for the recent year of $6,000. The division sales for the year were $1,042,000 and the variable costs were $863,000. The fixed costs of the division were $185,000. If the mountain bike division is dropped, 30% of the fixed costs allocated to that division could be eliminated. The impact on operating income for eliminating this business segment would be:

Multiple Choice

·       $55,500 decrease

·       $123,500 decrease

·       $49,500 decrease

·       $179,000 increase

·       $179,000 decrease

Granfield Company has a piece of manufacturing equipment with a book value of $44,000 and a remaining useful life of four years. At the end of the four years the equipment will have a zero salvage value. The market value of the equipment is currently $22,800. Granfield can purchase a new machine for $128,000 and receive $22,800 in return for trading in its old machine. The new machine will reduce variable manufacturing costs by $19,800 per year over the four-year life of the new machine. The total increase or decrease in net income by replacing the current machine with the new machine (ignoring the time value of money) is:

Multiple Choice

$26,000 increase

$79,200 decrease

$21,200 decrease

$54,800 increase

$26,000 decrease

Answer 1

Answer 33 -a. $39,790
Sales - Deluxe - 11,900 Units X $31.10	370,090
Sales - Super - 5,900 Units X $19.90	117,410
Total Sales		487,500
Less: Further Processing Costs	11,900
Sale Price of speciality Food - 19,900 Units X $21.90	435,810	447,710
Net Incremental Income		39,790
Answer 34 -b. $123,500 decrease
Statement of Net Incremantal Income (Loss)
If Mountain Bike Division is Dropped
Incremental Revenue
Savings in Variable Costs	863,000
Savings in Fixed Costs - $185,000 X 30%	55,500	918,500
Incremental Costs
Loss of Sales		1,042,000
Net Incremental Income (Loss)		(123,500)
Answer 35 -e. $26,000 Decrease
Statement of Net Incremantal Income (Loss)
If New Machine is Purchased
Incremental Revenue
Savings in Variable Costs - 19,800 X 4 Years	79,200
Salvage Value of New Machine	22,800	102,000
Incremental Costs
Cost of New Machine		128,000
Net Incremental Income (Loss)		(26,000)