33Walters manufactures a specialty food product that can cur

33)Walters manufactures a specialty food product that can currently be sold for $21.90 per unit and has 19,900 units on hand. Alternatively, it can be further processed at a cost of $11,900 and converted into 11,900 units of Deluxe and 5,900 units of Super. The selling price of Deluxe and Super are $31.10 and $19.90, respectively. The incremental net income of processing further would be:

Multiple Choice

·       $39,790.

·       $51,690.

·       $17,900.

·       $43,900.

·       $11,900.

34)Soar Incorporated is considering eliminating its mountain bike division, which reported an operating loss for the recent year of $6,000. The division sales for the year were $1,042,000 and the variable costs were $863,000. The fixed costs of the division were $185,000. If the mountain bike division is dropped, 30% of the fixed costs allocated to that division could be eliminated. The impact on operating income for eliminating this business segment would be:

Multiple Choice

·       $55,500 decrease

·       $123,500 decrease

·       $49,500 decrease

·       $179,000 increase

·       $179,000 decrease

Granfield Company has a piece of manufacturing equipment with a book value of $44,000 and a remaining useful life of four years. At the end of the four years the equipment will have a zero salvage value. The market value of the equipment is currently $22,800. Granfield can purchase a new machine for $128,000 and receive $22,800 in return for trading in its old machine. The new machine will reduce variable manufacturing costs by $19,800 per year over the four-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:

Multiple Choice

$26,000 increase

$79,200 decrease

$21,200 decrease

$54,800 increase

$26,000 decrease

Solution

Answer 33 -a. $39,790 Sales - Deluxe - 11,900 Units X $31.10          370,090 Sales - Super - 5,900 Units X $19.90          117,410 Total Sales          487,500 Less: Further Processing Costs            11,900 Sale Price of speciality Food - 19,900 Units X $21.90          435,810          447,710 Net Incremental Income            39,790 Answer 34 -b. $123,500 decrease Statement of Net Incremantal Income (Loss) If Mountain Bike Division is Dropped Incremental Revenue Savings in Variable Costs          863,000 Savings in Fixed Costs - $185,000 X 30%            55,500          918,500 Incremental Costs Loss of Sales      1,042,000 Net Incremental Income (Loss)       (123,500) Answer 35 -e. $26,000 Decrease Statement of Net Incremantal Income (Loss) If New Machine is Purchased Incremental Revenue Savings in Variable Costs - 19,800 X 4 Years            79,200 Salvage Value of New Machine            22,800          102,000 Incremental Costs Cost of New Machine          128,000 Net Incremental Income (Loss)          (26,000)