22. Thompson Company had the following results of operations for the past year S

ID: 2487617 • Letter: 2

Question

22. Thompson Company had the following results of operations for the past year Sales (16,000 units at $10) Direct materials and direct labor Overhead (20% variable) Selling and administrative expenses (all fixed) Operating income $160,000 $96,000 ed)12000 16,000 32.000 (44.000) $16,000 A foreign company (whose $7.50 per unit. In addition to variable manufacturing costs, selling fixed overhead by $600 and selling and administrative costs by $300. If Thompson accepts the offer, its profits will: A. Increase by $30,000. B. Increase by $6,000. C. Decrease by $6,000. D. Increase by $5,200 E. Increase by $4,300. sales will not affect Thompson's market) offers to buy 4,000 units at these units would increase 23. A company has already incurred a $12,000 cost in partially producing its two products. Their selling prices when partially and fully processed are shown in the following table with the additional costs necessary to finish their processing. Based on this information, should any products be processed further? Further Processing Costs S65 89 Unfinished Finished Processing Selling Price Selling Price Product $775 B 800888 $700 A. Both product A and product B should be processed further. B. Neither product A nor product B should be processed further. C. Only product B should be processed further. D. Only product A should be processed further. E. A processing further decision cannot be made from the available data.

Explanation / Answer

22.

Variable costs = Direct material and direct labor + Variable overhead = $96,000 + ($16,000 * 0.20) = $96,000 + $3,200 = $99,200

Units sold = 16,000 units

Variable cost per unit = $99,200 / 16,000 units = $6.20 per unit

Contribution margin per unit from new offer = Selling price – Variable cost per unit = $7.50 - $6.20 = $1.30 per unit

Contribution margin from new offer = $1.30 * 4,000 units = $5,200

Additional cost for new offer = $600 + $300 = $900

Change in profit from new offer = $5,200 - $900 = $4,300

Hence, answer is E. Increase by $4,300

23.

Product

Unfinished selling price

Finished selling price

Incremental selling price

Incremental costs

Incremental profit

$ 700

$ 775

$ 75

$ 65

$ 10

$ 800

$ 888

$ 88

$ 89

-$ 1

Answer is D. Only product A should be processed further.

24.

Year

Cash flows

Present value factor

Present value of cash flows

$ 12,000

0.9091

$ 10,909.20

$ 13,000

0.8264

$ 10,743.20

$ 12,000

0.7513

$ 9,015.60

$ 30,668.00

Less: Initial investment

-$ 28,000.00

Net present value

$ 2,668.00

Answer is B. $2,668.

25.

Answer is B. Means that a dollar tomorrow is worth more than a dollar today.

26.

A. Period costs.