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Exam 30: Cost-Revenue Analysis for Decision Making

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Question 41

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When direct costing is used,cost of goods sold reflects

A) both variable and fixed manufacturing costs.
B) variable manufacturing costs and variable selling and administrative expenses.
C) variable manufacturing costs only.
D) fixed manufacturing costs only.

E) B) and C)
F) B) and D)

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Question 42

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Which of the following represents a valid reason for rejecting a special order?

A) shipment is expected to go overseas.
B) profits will exceed that of current customer orders.
C) jeopardizes delivery of a loyal customer's order.
D) special tooling is required.

E) None of the above
F) A) and B)

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Question 43

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Which of the following should NOT be a consideration when deciding whether to make or buy a part?

The data given below pertains to the operations of the Newton Products Corporation for the year ended December 31,2016. Based on the information given prepare an income statement for the year using the direct costing approach.Assume that the beginning finished goods inventory had a cost of $25 per unit.

Common costs are allocated to each segment of a business to determine the segment's contribution margin.

Using the absorption method,the cost of goods sold is:

Manufacturing margin less variable selling and administrative expenses equal marginal income.

Before deciding to accept a special order,the company should evaluate if it has adequate manufacturing ____________.

The variable operating expenses are deducted from the manufacturing margin to arrive at the ____________________ on sales.

The direct costing procedure is sometimes referred to as variable costing.

Timkon Manufacturing has provided the following operating results for its recent operations: Using the absorption method,cost of goods manufactured for the year is:

Nabob Corporation is considering expanding into the Midwest.It is estimated that this new division would generate an average of $378,000 in sales per year.The variable manufacturing costs would be $187,000,variable selling costs would be $72,000,and controllable fixed costs would be $90,000.In addition,the company planned to allocate $85,000 of company common fixed costs to the new division.Is this a wise decision for Nabob Corporation? Why?

Which of the following is NOT relevant in evaluating whether to accept or reject a special order?

The Lourdes Corporation manufactures fans.A newly-formed construction company in the area desires to buy up to 300 of their Model CSB3192 this year.Lourdes quoted them a price of $67 which covers all costs plus markon.The construction company has indicated that they will buy all the fans they need in the future from Lourdes Corporation if Lourdes will sell the fans for $60 each.Lourdes Corporation has the capacity to make the 300 fans above their usual production needs.Currently,Lourdes ships all of their production to companies in other parts of the country,but do not usually sell any locally.If the $60 offer covers all costs and allows a small markon,what other things should Lourdes consider before coming to a final decision?

Fixed costs often are not relevant in the decision-making process as costs do not vary in total within a relevant range of activity.

The data given below pertains to the operations of the Newton Products Corporation for the year ended December 31,2016. Based on the information given prepare an income statement for the year using the absorption costing approach.Assume that the beginning finished goods inventory had a cost of $32.50 per unit.

In managerial decisions,nonmanufacturing costs can be ignored.

The increase in a cost from one alternative to another is called a(n)____________________ cost.

Bianca Jewel Box Manufacturing received an offer from a nonprofit organization for a one-time purchase of 2,000 of its Model RYA18261 at $20 each for distribution to flood victims in the South.Full capacity at Bianca is 25,000 units.Bianca currently expects to make 20,000 units in the current year and based all estimates on that expectation.There will be no delivery costs for this special order.The average costs to Bianca to produce one Model RYA18261 are $27 each as shown. Should Bianca accept this special offer? Explain your decision.

Fixed costs are associated with the capacity to produce goods,not to the actual goods produced.