Chapter 10a Practice
1. Marcell Corporation is considering two alternatives that are code-named M and N. Costs
associated with the alternatives are listed below:
Required:
a. Which costs are relevant and which are not relevant in the choice between these two
alternatives?
b. What is the differential cost between the two alternatives?
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Brewer - Chapter 10 #127
Difficulty: 1 Easy
Learning Objective: 10-01 Identify relevant and irrelevant costs and benefits in a decision.
Topic: Cost Concepts for Decision Making
2. Costs associated with two alternatives, code-named Q and R, being considered by Corniel
Corporation are listed below:
Required:
a. Which costs are relevant and which are not relevant in the choice between these two
alternatives?
b. What is the differential cost between the two alternatives?
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Brewer - Chapter 10 #128
Difficulty: 1 Easy
Learning Objective: 10-01 Identify relevant and irrelevant costs and benefits in a decision.
Topic: Cost Concepts for Decision Making
3. The management of Therriault Corporation is considering dropping product U51Y. Data from
the company's accounting system appear below:
All fixed expenses of the company are fully allocated to products in the company's accounting
system. Further investigation has revealed that $280,000 of the fixed manufacturing expenses
and $140,000 of the fixed selling and administrative expenses are avoidable if product U51Y is
discontinued.
Required:
What would be the effect on the company's overall net operating income if product U51Y were
dropped? Should the product be dropped? Show your work!
Net operating income would increase by $8,000 if product U51Y were dropped. Therefore, the
product should be dropped.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Brewer - Chapter 10 #129
Difficulty: 1 Easy
Learning Objective: 10-02 Prepare an analysis showing whether a product line or other business segment should be added or dropped.
Topic: Adding and Dropping Product Lines and Other Segments
4. Nutall Corporation is considering dropping product N28X. Data from the company's
accounting system appear below:
All fixed expenses of the company are fully allocated to products in the company's accounting
system. Further investigation has revealed that $199,000 of the fixed manufacturing expenses
and $114,000 of the fixed selling and administrative expenses are avoidable if product N28X is
discontinued.
Required:
a. According to the company's accounting system, what is the net operating income earned by
product N28X? Show your work!
b. What would be the effect on the company's overall net operating income of dropping product
N28X? Should the product be dropped? Show your work!
a. According to the company's accounting system, the product's net operating loss is $66,000.
b. Net operating income would decline by $81,000 if product N28X were dropped. Therefore,
the product should not be dropped.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Brewer - Chapter 10 #130
Difficulty: 1 Easy
Learning Objective: 10-02 Prepare an analysis showing whether a product line or other business segment should be added or dropped.
Topic: Adding and Dropping Product Lines and Other Segments
5. The management of Rodarmel Corporation is considering dropping product G91Q. Data from
the company's accounting system appear below:
All fixed expenses of the company are fully allocated to products in the company's accounting
system. Further investigation has revealed that $57,000 of the fixed manufacturing expenses and
$40,000 of the fixed selling and administrative expenses are avoidable if product G91Q is
discontinued.
Required:
a. What is the net operating income earned by product G91Q according to the company's
accounting system? Show your work!
b. What would be the effect on the company's overall net operating income of dropping product
G91Q? Should the product be dropped? Show your work!
a. According to the company's accounting system, the product's net operating loss is $7,000.
b. Net operating income would decline by $103,000 if product G91Q were dropped. Therefore,
the product should not be dropped.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Brewer - Chapter 10 #131
Difficulty: 1 Easy
Learning Objective: 10-02 Prepare an analysis showing whether a product line or other business segment should be added or dropped.
Topic: Adding and Dropping Product Lines and Other Segments
6. Mr. Earl Pearl, accountant for Margie Knall Co., Inc., has prepared the following product-line
income data:
The following additional information is available:
* The factory rent of $1,500 assigned to Product C is avoidable if the product were dropped.
* The company's total depreciation would not be affected by dropping C.
* Eliminating Product C will reduce the monthly utility bill from $1,500 to $800.
* All supervisors' salaries are avoidable.
* If Product C is discontinued, the maintenance department will be able to reduce monthly
expenses from $3,000 to $2,000.
* Elimination of Product C will make it possible to cut two persons from the administrative staff;
their combined salaries total $3,000.
Required:
Prepare an analysis showing whether Product C should be eliminated.
Since there is a net $800 disadvantage to dropping Product C, it should not be dropped.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Brewer - Chapter 10 #132
Difficulty: 2 Medium
Learning Objective: 10-02 Prepare an analysis showing whether a product line or other business segment should be added or dropped.
Topic: Adding and Dropping Product Lines and Other Segments