# donnelly company has three products r2 r4 and r2d2 the following information is avai 4312177

Donnelly Company has three products, R2, R4, and R2D2. The following information is available:

 Product R2 Product R4 Product R2D2 Sales \$30,000 \$45,000 \$12,000 Variable costs 18,000 24,000 7,500 Contribution margin 12,000 21,000 4,500 Fixed costs: Avoidable 4,500 9,000 3,000 Unavoidable 3,000 4,500 2,700 Operating income \$4,500 \$7,500 \$ (1,200)

53) Donnelly Company is thinking of dropping Product R2D2 because it is reporting a loss. Assuming Donnelly drops Product R2D2 and does not replace it, operating income will:

A) increase by \$1,200.

B) increase by \$1,500.

C) decrease by \$1,500.

D) decrease by \$2,700.

54) Assuming Product R2D2 is discontinued and the space formerly used to produce the product is rented for \$6,000 per year, operating income will:

A) increase by \$3,300.

B) increase by \$4,500.

C) increase by \$6,000.

D) increase by \$7,200.

55) When deciding to accept a one-time-only special order from a wholesaler, management should do all of the following EXCEPT:

A) analyze product costs.

B) consider the impact of the special order on future prices of their products.

C) determine whether excess capacity is available.

D) verify past design costs for the product.

56) When there is excess capacity, it makes sense to accept a one-time-only special order for less than the current selling price when:

A) incremental revenues exceed incremental costs.

B) additional fixed costs must be incurred to accommodate the order.

C) the company placing the order is in the same market segment as your current customers.

D) None of the above is correct.

57) The theory of constraints:

A) emphasizes long-term optimization.

B) maintains that carefully managing production bottlenecks will increase operating income.

C) helps managers make special one-time decisions.

D) suggests that some component parts should be outsourced.

58) Constraints from the theory of constraints may include:

A) the availability of direct materials in manufacturing.

B) linear square feet of display space for a retailer.

C) direct labor in the service industry.

D) All of the above are correct.

Skate Magic manufactures three different product lines, Model TS, Model AY, and Model GG. Considerable market demand exists for all models. The following per unit data apply:

 Model TS Model AY Model GG Selling price \$100 \$120 \$140 Direct materials 12 12 12 Direct labot (\$12 per hour) 24 24 48 Variable support costs (\$4 per machine-hour) 8 16 16 Fixed support costs 20 20 20

59) Which model has the greatest contribution margin per unit?

A) Model TS

B) Model AY

C) Model GG

D) both Models TS and AY

60) Which model has the greatest contribution margin per machine-hour?

A) Model TS

B) Model AY

C) Model GG

D) both Models YA and GG

61) If there is excess capacity, which model is the most profitable to produce?

A) Model TS

B) Model AY

C) Model GG

D) both Models TS and AY

62) If there is a machine breakdown, which model is the most profitable to produce?

A) Model TS

B) Model AY

C) Model GG

D) both Models AY and GG

63) How can the Vice-president of sales at Skate Magic encourage her salespeople to promote the more profitable model?

A) Put all sales persons on salary.

B) Provide higher sales commissions for higher priced items.

C) Provide higher sales commissions for items with the greatest contribution margin per constrained resource.

D) Provide higher sales commissions for higher priced items and items with the greatest contribution margin per constrained resource.

Umberger Manufacturing, Inc., is considering reorganizing its plant into manufacturing cells. The following estimates have been prepared to evaluate the benefits from the reorganization:

 Before the change After the change Total annual sales \$600,000 \$800,000 Costs as a percentage of sales: Direct materials 23% 20% Direct labor 9% 7% Manufacturing Support costs 18% 13% Work-in-process inventory \$125,000 \$90,000

Inventory carrying costs are estimated to be 10% per year.

64) As a result of the layout reorganization, reduced levels of work-in-process inventory are projected to decrease inventory carrying costs annually by:

A) \$12,500.

B) \$ 9,000.

C) \$ 6,000.

D) \$ 3,500.

65) As a result of the layout reorganization, incremental manufacturing costs are projected to:

A) increase by \$84,000 annually

B) increase by \$20,000 annually

C) decrease by \$20,000 annually

D) decrease by \$16,500 annually

66) As a result of switching to a cellular manufacturing operation, total benefits are projected to increase annually by:

A) \$216,500.

B) \$200,000.

C) \$183,500.

D) \$176,500.

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