5. TB 64 The Tingey Company has 500 obsolete microcomputers that are carried in

Question

5.
TB 64 The Tingey Company has 500 obsolete microcomputers that are carried in inventory at a total cost of $720,000. If these microcomputers are upgraded at a total cost of $100,000, they can be sold for a total of $160,000. As an alternative, the microcomputers can be sold in their present condition for $50,000.

The sunk cost in this situation is:
A) $720,000
B) $160,000
C) $50,000
D) $100,000

6.
TB 120 Resendes Refiners, Inc., processes sugar cane that it purchases from farmers. Sugar cane is processed in batches. A batch of sugar cane costs $48 to buy from farmers and $16 to crush in the company's plant. Two intermediate products, cane fiber and cane juice, emerge from the crushing process. The cane fiber can be sold as is for $24 or processed further for $17 to make the end product industrial fiber that is sold for $38. The cane juice can be sold as is for $34 or processed further for $23 to make the end product molasses that is sold for $76.

How much profit (loss) does the company make by processing the intermediate product cane juice into molasses rather than selling it as is?
A) $3
B) $19
C) $(45)
D) $(13)

7.
TB 53 Coakley Beet Processors, Inc., processes sugar beets in batches. A batch of sugar beets costs $48 to buy from farmers and $10 to crush in the company's plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $24 or processed further for $16 to make the end product industrial fiber that is sold for $36. The beet juice can be sold as is for $44 or processed further for $28 to make the end product refined sugar that is sold for $70. How much profit (loss) does the company make by processing the intermediate product beet juice into refined sugar rather than selling it as is?
A) $(31)
B) $(60)
C) $(2)
D) $(12)

Explanation / Answer

The book value of a machine, as shown on the balance sheet, is relevant in a decision concerning the replacement of that machine by another machine.

B) False

2.
Generally, a product line should be dropped when the fixed costs that can be avoided by dropping the product line are less than the contribution margin that will be lost.
A) True

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