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Q 1 K. Corporation Use Part A43 in one of products. The company’s Accounting
Department reports the following costs of producing the 12,000 units of the part that are
needed every year.
Depreciation of Special Equipment
Allocated General Overhead
An outside supplier has offered to make the part and sell it to the company for $14.70 each.
If this offer is accepted, the supervisor’s salary and all of the variable costs, including
direct labor, can be avoided. The special equipment used to make the part was purchased
many years ago and has no salvage value or other use. The allocated general overhead
represents fixed costs of the entire company. If the outside supplier’s offer were accepted,
only $5,000 of these allocated general overhead costs will be bear.
a. Prepare a report that shows the effect on the company’s total net operating income of
buying part A43 from the supplier rather than continuing to make it inside the company.
b. Which alternative should the company choose?
Q2. Define in Your words
a. Cost Centre
b. Profit Centre
c. Investment Centre
Q.3 KK Industries is a division of a major corporation. Last year the division had total
sales of $23,380,000, net operating income of $2,828,980, and average operating assets of
$7,000,000. The company’s minimum required rate of return is 12%.
a. What is the division’s margin?
b. What is the division’s turnover?
c. What is the division’s return on investment (ROI)? (2 Marks )
Q 4. The following standards have been established for a raw material used in the production of
Standard quantity of the material per unit of output …
Standard price of the material ……………………………………
$14.50 per pound
The following data pertain to a recent month’s operations:
Actual material purchased ………………..
Actual cost of material purchased …….
Actual material used in production ….
2,800 units of product O99
a. What is the materials price variance for the month?
b. What is the materials quantity variance for the month?
(3 Marks )
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