GNB13eCh13Exam - Garrison 13e Practice Exam Chapter 13...

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Garrison 13e Practice Exam – Chapter 13 Print these pages. Answer each of the following questions, explaining your answers or showing your work, as appropriate, and then compare your solutions to those provided at the end of the practice exam. 1. The management of Bernese Company is considering whether one of the department’s in its retail stores should be eliminated. The contribution margin in the department is $150,000 per year. Fixed expenses allocated to the department are $130,000 per year. It is estimated that $120,000 of these fixed expenses will be eliminated if the department is discontinued. Part (a) Which costs, if any, are irrelevant to this decision? Part (b) If the department is eliminated, what will be the impact on the company’s overall net operating income? 2. Warren Company, which manufactures a single product, is operating at full capacity of 20,000 units per month. The follow unit costs relate to the manufacture of this product: Manufacturing: Direct materials $2.00 Direct labor 4.00 Variable overhead 1.00 Fixed overhead 1.80 Selling and administrative: Variable 3.00 Fixed 1.200 The company has 100 units left over from last year which have small defects and which will have to be sold at a reduced price as scrap. This would have no effect on the company's other sales. The variable selling and administrative costs would have to be incurred to sell the defective units. What cost is relevant as a guide for setting a minimum price on these defective units?
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3. Composite Company produces 2,000 parts per year, which are used in the assembly of one of its products. The unit product cost of these parts is: Variable manufacturing cost $64 Fixed manufacturing cost 36 Unit product cost $100 The part can be purchased from an outside supplier at $80 per unit. If the part is purchased from the outside supplier, two-thirds of the fixed manufacturing costs can be eliminated.
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GNB13eCh13Exam - Garrison 13e Practice Exam Chapter 13...

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