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XYZ Company produces a part that has the following cost per unit:

Direct Material 7
Direct Labor 4
Factory Overhead (83.33% Fixed) 6
Total 17

ABC Company can provide the part to XYZ for 19 per unit. XYZ Company has determined
that 3/5 of its fixed overhead would continue if it purchased the part. However, if XYZ no
longer produces the part, it can rent that portion of the plant facilities for 60,000 per year.
XYZ Company currently produces 10,000 parts per year. Which alternative is preferable and
by what margin?

A. MAKE 10,000 C. BUY 10,000

B. BUY 40,000 D. MAKE - 50,000
2. Effortless Company has 3 divisions: Good, Better, and Best. Division Goods income
statement shows the following for the year ended December 31, 2016:
Sales 10,000,000
Cost of Goods Sold (8,000,000)
Gross Profit 2,000,000
Selling Expenses 1,000,000
Administrative Expenses 2,500,000 (3,500,000)
Net Loss (1,500,000)

Cost of Goods sold variable and fixed. Of the fixed costs, 60% are avoidable if the
division is closed. All of the selling expenses relate to the division and would be eliminated if
Division Good were eliminated. Of the administrative expenses, 90% are applied from
corporate costs. If Division Good were eliminated, Effortless income would
A. Increase by 450,000 C. Decrease by 1,550,000
B Decrease by 2,550,000 D. Increase by 1,500,000

3. Toy store Corp. produces five products: A1, A2, A3, A4, A5. One machine is used to
produce the products. The market limit, selling price, vc/unit, cm ratio, and time on the
machine (in hours) are as follows:

A1 A2 A3 A4 A5
Market Limit 250 220 270 190 200
Selling Price ? 30 ? ? 34
VC/unit 15 15 13 ? ?
CM Ratio 40% ? ? 30% 58.83%
Hours on machine ? 6 4 8 ?
CM per Hour 2 ? 3.25 1.5 4

There are 5,554 hours available on the machine during the week. Total fixed cost is 9,500.
How much is the profit associated with the best product combination?

A. 5,096 C. 5,166
B. 7,990 D. 6,790

4. QMC Company is currently operating at a loss of 15,000. The sales manager has received
a special order for 5,000 units of product, which normally sells for 35 per unit. Costs
associated with the product are: Direct materials, 6; Direct labor, 10; Variable overhead, 3;
Applied fixed overhead, 4; and Variable selling expense, 2. The special order would allow the
use of a slightly lower grade of direct material, thereby lowering the price per unit by 1.50
and selling expenses would be decreased by 1. If QMC wants this special order to increase
the total net income for the firm to 10,000, what sales price must be quoted for each of the
5,000 units?

A. 23.50 C. 27.50
B. 24.50 D. 34.00
5. MM Company produces a part called M-G that has the following cost per unit:

Materials 10
Direct labor 5
*Factory overhead 20

*Fixed factory overhead is of the Variable factory overhead.

OM Company, a well-known producer of part M-G has offered to supply the part for MM
Company at 32 per unit .If MM company accepts OMs offer, it can rent the idle facility for
2,200 per month and 3/4 of its Fixed FOH will be avoided. Handling cost is applied at 10% of
cost of materials and or any purchased part. MM Company uses 300 units of part M-G.
How much is the total relevant cost to make and the total relevant cost to buy?

A. 12,625; 10,560 C. 12,700; 10.560

B. 14,125; 9,600 D. 13,000; 10,560