Reference no: EM133059373

Questions -

Q1. A company has the choice of either selling 1,000 unfinished units as is or completing them. The company could sell the unfinished units as is for $4,000. Alternatively, it could complete the units for an additional cost of $4,500 and then sell the completed units for $8,000. If the company completes the units, what is the impact on income?

Income will increase by $8,000.

Income will decrease by $500.

Income will decrease by $4,500.

Income will increase by $500.

Income will increase by $4,000.

Q2. Valdez Company is considering eliminating its kitchen division, which reported an operating loss of $62,000 for the past year as shown below.

Segment Income (Loss)

Sales $1,210,000

Variable costs 902,000

Contribution margin 308,000

Fixed costs 370,000

Income (loss) $(62,000)

If the kitchen division is dropped, all $902,000 of its variable costs are avoidable, and $222,000 of its fixed costs are avoidable. The impact on Valdez's income from eliminating this business segment would be:

$308,000 decrease

$86,000 increase

$319,200 decrease

$308,000 increase

$86,000 decrease

Q3. Riener Hospital has an x-ray machine with a book value of $60,000 and a remaining useful life of three years. At the end of the three years the equipment will have a zero-salvage value. Reiner can sell the old machine now for $32,000 and can purchase a new machine for $145,000. The old machine has variable manufacturing costs of $50,000 per year. The new machine will reduce variable manufacturing costs by $27,000 per year over the three-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:

$22,000 increase

$52,000 increase

$18,000 decrease

$76,000 increase

$32,000 decrease