ACCT 346 Midterm Exam 2

$5,400 disadvantage
$3,000 advantage
12. Question : (TCO 7) Olde Store has 12,000 cans of crab meat just a week past the expiration
date. Each can cost $0.31. The cans could be sold as is for $0.20 each, or relabeled and sold as gourmet
cat food. The cost of relabeling the cans would be $0.04 per can and the cans would then sell for $0.29
per can. What should be done with the cans and why?
Student Answer:
The cans should be thrown away since there will be a loss with the
other alternatives.
The cans should be relabeled into cat food since the sales price increases $0.09 per can and the cost is
only $0.04 per can.
The cans should be put on clearance since there is no reason to put more money into something that is
already selling below cost.
It doesn’t matter what you do since all alternatives result in a loss.
1. Question : (TCO 3) Describe a process costing system, including the types of companies
that commonly use this system. How can process costing information be used in incremental analysis?
2. Question : (TCO 7) Each year, ACE Engines surveys 7,600 former and prospective customers
regarding satisfaction and brand awareness. For the current year, the company is considering
outsourcing the survey to RBG Associates, who have offered to conduct the survey and summarize
results for $50,000. Robert Ace, the president of ACE Engines, believes that RBG will do a higher-quality
job than his company has been doing, but is unwilling to spend more than $12,000 above current costs.
The head of bookkeeping for ACE has prepared the following summary of costs related to the survey in
the prior year.
Mailing $27,000
Printing (done by Lester Print Shop) 9,000
Salary of Pat Fisher, part-time employee who stuffedenvelopes and summarized data when surveys
were returned (130 x $16) 2,080
Share of depreciation of computer and software used to track survey responses and summarize results
1,200
Share of electricity/phone/etc. based on square feet of space occupied by Pat Fisher vs. entire company
600
Total $39,880
Prepare an incremental analysis in good form to determine the impact on profit of going outside versus
conducting the survey as in the past. Will ACE accept the RBG offer? Why or why not?
3. Question : (TCO 4) The following monthly data are available for RedEx, which produces
only one product that it sells for $84 each. Its unit variable costs are $28 and its total fixed expenses are
$64,960. Sales during April totaled 1,600 units.
(a) How much is the breakeven point in sales dollars for RedEx?
(b) How many units must RedEx sell in order to earn a profit of $24,640?
(c) A new employee suggests that RedEx sponsor a company softball team as a form of advertising. The
cost to sponsor the team is $1,792. How many more units must be sold to cover this cost?