Chapman inc (25 multiple choice question)

1. Chapman Inc. has several outdated computers that cost a total of $8,600 and could be sold as scrap for $4,600. They could be updated for an additional $2,400 and sold. If Chapman updates the computers and sells them, net income will increase by $5,400. What amount would be considered sunk costs?

A) $5,400

B) $11,000

C) $8,600

D) $1,200


2. It costs Chapman Company $18.40 of variable and $3.75 of fixed costs to produce one bathroom scale, which normally sells for $47.00. A foreign wholesaler offers to purchase 4,000 scales at $26.90 each. Chapman would incur special shipping costs of $2.75 per scale if the order were accepted. Chapman has sufficient unused capacity to produce the 4,000 scales. If the special order is accepted, what will be the effect on net income?

A) $107,600 increase

B) $23,000 increase

C) $8,000 increase

D) $23,000 decrease


6. Mesh Merchandising Company expects to purchase $86,000 of materials in July and $118,000 of materials in August. 21ree-quarters of all purchases are paid for in the month of purchase, and the other one-fourth are paid for in the month following the month of purchase. How much will August’s cash disbursements for materials purchases be?

A) $118,000

B) $64,500

C) $88,500

D) $110,000


8. The following information is taken from the production budget for the first quarter:

Beginning inventory in units 883

Sales budgeted for the quarter 338,000

Capacity in units of production facility 350,000

How many finished goods units should be produced during the quarter if the company desires 2,100 units available to start the next quarter?

A) 339,217

B) 340,100

C) 351,217

D) 336,783


9. Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered:

Old Machine New Machine

Price $300,000 $600,000

Accumulated Depreciation 90,000 -O-

Remaining useful life 10 years -O-

Useful life -0- 10 years

Animal operating costs $240,000 $180,600


If the old machine is replaced, it can be sold for $24,000.

The net advantage (disadvantage) of replacing the old machine is

A) $18,000

B) $(6,000)

C) $24,000

D) $(60,000)


10. Astor Manufacturing has the following budgeted sales: January $120,000, February $180,000, and March $150,000. 40% of the sales are for cash and 60% are on credit. For the credit sales, 50% are collected in the month of sale, and 50% the next month. The total expected cash receipts during March are:

A) $159,000.

B) $168,000.

C) $157,500.

D) $150,000.


12. Comma Co. makes and sells widgets. The company is in the process of preparing its selling and administrative expense budget for the month. The following budget data are available:

Item Variable Cost Per Unit Sold Monthly Fixed Cost

Sales commissions $1 $10,000

Shipping $3

Advertising $4

Executive salaries $120,000

Deprecíation on office equipment $4,000

Other $2 $6,000

Expenses are paid in the month incurred. If the company has budgeted to sell 80,000 widgets in October, how much is the total budgeted selling and administrative expenses for October?

A) $930,000

B) $940,000

C) $800,000

D) $140,000


13. The cost to produce Part A was $82 per unit in 2012. During 2013, it has increased to $89 per unit. In 2013, Supplier Company has offered to supply Part A for $75 per unit. For the make-or-buy decision,

A) incremental revenues are $14 per unit.

B) incremental costs are $7 per unit.

C) net relevant costs are $7 per unit.

D) differential costs are $14 per unit.


15. At January 1, 2013, Farley, Inc. has beginning inventory of 2,000 surfboards. Farley estimates it will seli 5,000 units during the first quarter of 2013 with a 12% increase in sales each quarter. Farley’s policy is to maintain an ending inventory equal to 25% of the next quarter’s sales. Each surfboard costs $100 and is sold for $150. How much is budgeted sales revenue for the third quarter of 2013?

A) $975,000

B) $6,272

C) $225,000

D) $940,800


16. If there were 68,000 pounds of raw materials on hand on January 1, 135,000 pounds are desired for inventory at January 31, and 400,000 pounds are required for January production, how many pounds of raw materials should be purchased in January?

A) 332,000 pounds

B) 197,000 pounds —

C) 535,000 pounds

D) 467,000 pounds


18. On January 1, Stranbrough Company has a beginning cash balance of $21,000. During the year, the company expects cash disbursements of $169,400 and cash receipts of $154,000. If Stranbrough requires an ending cash balance of $20,000, the company must borrow

A) $36,400.

B) $25,600.

C) $20,000.

D) $14,400.


7. Walton, Inc. is considering the following alternatives:


Alternative 1

Alternative 2

Revenues  $120,000 $120,000

Variable costs 32,000 43,000

Fixed costs 34,000 51,000


Which of the following are relevant in choosing between the alternatives?

A) Revenues

B) Variable costs and fixed costs

C) Fixed costs

D) Variable costs


11. Kalamoo produces several products that can be sold at the split-off point or then sold processed further.


The following results are from a recent period:

Product           Sales Value At Split-Off        Additional Variable Costs      Sales Value After Further Processing

Green Lumber             75,200                                     12,000                                     86,200

Rough Lumber            79,500                                     8,000                                       88,500

Sawdust          45,000                                     20,000                                     67,000


Which products should be processed further?

A) All three products

B) Green lumber and rough lumber

C) Rough lumber and sawdust

D) Green lumber and sawdust


19. Lytle Company reported the following information for 2013:


Octvber November December

Budgeted sales

$230,000 $220,000 $270,000

Budgeted purchases

$120,000 $128,000 $144,000

    All sales are on credit.

 Customer amounts on account are collected 50% in the month of sale and 50% in the following month.

        Cost of goods sold is 35% of sales.

Lytle purchases and pays for merchandise 60% in the month of acquisition and 40% in the following month.

Accounts payable is used only for inventory acquisitions.


How much cash will Lytle receive during November?

A)    $110,000

 B) $245,000

C) $220,000

D) $225,000


22. Walton Division has the following data:

Sales $660,000

Variable expenses 250,000

Fixed expenses 476,000

The fixed costs are not awidable and must be allocated to profitable divisions if the segment is eliminated. What will be the incrementa) effect on net income if Walton Division is eliminated?


A) $410,000 decease

B) $476,000 decrease

C) $66,000 íncrease

D) Cannot be determined from the data provided.


25. A company’s unit costs based on 500,000 units are:

Variable costs $32

Fixed costs 20

The normal unit sales price per unit is $110. A special order from a foreign company has been received for 4,000 units at $90 a unit. In order to fulfill the order, 2,000 units of regular sales would have to be foregone. The opportunity cost associated with this order is


A)    $64,000.

B) $180,000.

C) $220,000.

D) $156,000.

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