AICPA: BB Critical Thinking; FN Decision Making
262) Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $360,000 or a new model 220 machine costing $340,000 to replace a machine that was purchased 7 years ago for $348,000. The old machine was used to make product I43L until it broke down last week. Unfortunately, the old machine cannot be repaired.
Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product I43L.
Management also considered, but rejected, the alternative of simply dropping product I43L. If that were done, instead of investing $340,000 in the new machine, the money could be invested in a project that would return a total of $411,000.
In making the decision to invest in the model 220 machine, the opportunity cost was:
A) $348,000
B) $340,000
C) $360,000
D) $411,000
Answer: D
Explanation: Opportunity cost = Return from alternative investment = $411,000
Difficulty: 1 Easy
Topic: Cost Classifications for Decision Making
Learning Objective: 01-05 Understand cost classifications used in making decisions: differential costs, sunk costs, and opportunity costs.
Bloom's: Apply
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Decision Making
263) Bolka Corporation, a merchandising company, reported the following results for October:
Sales
$
4,096,400
Cost of goods sold (all variable)
$
2,194,500
Total variable selling expense
$
238,700
Total fixed selling expense
$
144,700
Total variable administrative expense
$
238,700
Total fixed administrative expense
$
282,900
The gross margin for October is:
A) $1,424,500
B) $1,901,900
C) $996,900
D) $3,668,800
Answer: B
Explanation:
Sales
$
4,096,400
Cost of goods sold
2,194,500
Gross margin
$
1,901,900
Difficulty: 1 Easy
Topic: Using Different Cost Classifications for Different Purposes
Learning Objective: 01-06 Prepare income statements for a merchandising company using the traditional and contribution formats.
Bloom's: Apply
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement
264) Bolka Corporation, a merchandising company, reported the following results for October:
Sales
$
4,096,400
Cost of goods sold (all variable)
$
2,194,500
Total variable selling expense
$
238,700
Total fixed selling expense
$
144,700
Total variable administrative expense
$
238,700
Total fixed administrative expense
$
282,900
The contribution margin for October is:
A) $1,424,500
B) $3,191,400
C) $1,901,900
D) $996,900
Answer: A
Explanation:
Sales
$
4,096,400
Variable expenses:
Cost of goods sold
$
2,194,500
Variable selling expense
238,700
Variable administrative expense
238,700
2,671,900
Contribution margin
$
1,424,500
Difficulty: 1 Easy
Topic: Using Different Cost Classifications for Different Purposes
Learning Objective: 01-06 Prepare income statements for a merchandising company using the traditional and contribution formats.
Bloom's: Apply
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement
265) Streif Inc., a local retailer, has provided the following data for the month of June:
Merchandise inventory, beginning balance
$
46,000
Merchandise inventory, ending balance
$
52,000
Sales
$
260,000
Purchases of merchandise inventory
$
128,000
Selling expense
$
13,000
Administrative expense
$
40,000
The cost of goods sold for June was:
A) $128,000
B) $181,000
C) $122,000
D) $134,000