Pasha Company produced 50 defective units last month at a unit manufacturing cos
ID: 2521704 • Letter: P
Question
Pasha Company produced 50 defective units last month at a unit manufacturing cost of $30. The defective units were discovered before leaving the plant. Pasha can sell them "as is" for $20 or can rework them at a cost of $15 and sell them at the regular price of $50. Which of the following is not relevant to the sell-or-rework decision? http://east.instructor.cengagenow.com/ilrn/bca/instr/test-printing/376965427/html-print?sel. 4/19/2010 Quick View Page 1 of 19 Oa. $20 Ob. $15 ??. $50 Od. $30 e. all are relevant 27 MULTIPLE CHOICE 12-31 Walloon Company produced 150 defective units last month at a unit manufacturing cost of $30. The defective units were discovered before leaving the plant. Walloon can sell them as is for $20 or can rework them at a cost of $15 and sell them at the regular price of $50. The total relevant cost of reworking the defective units is: Oa. $4,500 Ob. $7,500 Oc. $6,750 d. $3,000 Oe. $2.250 28. MULTIPLE CHOICE 12-35 in navy blue with the company Stein Company makes carpets. A customer wants to place a special order for 1,000 carpets logo woven in the middle, to be priced at $30 each. Normally, Stein would charge $60 per carpet for this type of order. Stein figures that yam and backing will cost $12 per carpet, variable overhead (machining, electricity) is $5 per carpet, direct labor is $10 per carpet, and one setup will be required at $800 per setup. Currently, the workers needed to set up for and make the carpets are working at Stein. Their wages will be paid whether or not the special order is accepted. Stein's policy is to avoid layoffs to the extent possible. If Stein accepts the special order, by how much will operating income increase or decrease? a. there will be no effect on operating income Ob. $3,000 increase Oc. $3,000 decrease Od. $13,000 decrease e. $13,000 increaseExplanation / Answer
26 Cost already incurred is not relevant to the sell or rework decision Cost Already Incurred: Manfacturing Cost Incurred 30.00 Answer is D 27 Relavant Cost for Reworking the Defective Units is Cost to be incurred: Total Defective Units 150 Cost of Reworking 15 Total Relevant Cost 2250 Answer is E 28 Special Offer Units 1000 PU Total Special Offer Price 30.00 30000 Costs: Yarn & Backing 12.00 12000 Variable OH 5.00 5000 Setup Cost 0 Sunk Cost Direct Labor 0 Sunk Cost Total Cost 17000 Net Benefit 13000 Answer is E 13000 Increase Note: Both Setup & Labor Cost Involve Labor and Labor will be paid whether the offer is accepted or not Hence is cost is Sunk for the decision or irrelvant for decision