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Exam 23: Relevant Costing for Managerial Decisions

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Question 21

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Impact on relationships with customers,company image,and employee morale are all examples of _________________________ decision factors.

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Question 22

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Doggy Day Park Inc.currently has a special tank used to provide exercise hydro therapy for the dogs.The current book value of the tank is $25,000 and they could sell it for $12,000 if they wanted to do so.Doggy is evaluating a new tank system that will provide additional therapy capability.The new tank will cost $55,000 and will save $7,500 per year in operating costs.The new tank system is expected to last six years. Required: a.Using incremental analysis,should they buy the new tank? Show calculations to support your answer. b.Will the answer to (a)change if they can only sell the old tank for $5,000? Why or why not?

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_TB6312_00_TB6312_00 a.DDP should buy th...

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Question 23

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A company inadvertently produced 6,000 defective portable CD players.The CD players cost $20 each to be manufactured.A salvage company will purchase the defective units as they are for $16 each.The production manager reports that the defects can be corrected for $9 per unit,enabling the company to sell them at the regular price of $30.The repair operations would not affect other production operations.Prepare an analysis that shows which action should be taken.

The total cost method determines a selling price equal to a product's total costs plus a desired profit on the product.

Marcus processes four different products that can either be sold as is or processed further. Listed below are sales and additional cost data: $\begin{array} {l} &\text{Sales Value}&&\text{Sales}\\&\text{with No}&\text{Additional}&\text{Value after}\\&\text{Further}&\text{Processing}&\text{Further}\\\underline{\text{Product}}&\underline{\text{Processing}}&\underline{\text{Costs}}&\underline{\text{Processing}}\\\text{Acta}&\$ 1,350&\$900&\$ 2,700\\\text{Corda}&450&225&630\\\text{Fando}&900&450&1800\\\text{Limo}&90&45&180\end{array}$ Which product(s) should not be processed further?

A company has the choice of either selling 1,000 defective units as scrap or rebuilding them.The company could sell the defective units as they are for $4.00 per unit.Alternatively,it could rebuild them with incremental costs of $1.00 per unit for materials,$2.00 per unit for labor,and $1.50 per unit for overhead,and then sell the rebuilt units for $8.00 each.What should the company do?

A company has just received a special,one-time order for 1,000 units.Producing the order will have no effect on the production and sales of other units.The buyer's name will be stamped on each unit,at a total cost of $2,000.Normal cost data,excluding stamping,follows: $\begin{array}{lr}\text { Direct materials } & \$ 10 \text { per unit } \\\text { Direct labor } & 16 \text { per unit } \\\text { Variable overhead } & 4 \text { per unit } \\\text { Allocated fixed overhead } & 12 \text { per unit } \\\text { Allocated fixed selling expense } & 8 \text { per unit }\end{array}$ What selling price per unit will this company require to earn $3,000 on the order?

Are relevant costs useful to management in determining long-run pricing decisions?

Good management accounting indicates that projects be evaluated using relevant data.In choosing among alternatives,what factors (considerations)are relevant?

A company has already incurred a $600 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,the company should process both products further. $\begin{array} { | c | c | c | c | } \hline \text { Product } & \begin{array} { c } \text { Unfinished } \\\text { Selling Price }\end{array} & \begin{array} { c } \text { Finished } \\\text { Selling Price }\end{array} & \begin{array} { c } \text { Further } \\\text { Processing } \\\text { Costs }\end{array} \\\hline \text { A } & \$ 425 & \$ 500 & \$ 70 \\\hline \text { B } & 375 & 400 & 20 \\\hline\end{array}$

Patrick Corporation inadvertently produced 10,000 defective personal radios.The radios cost $8 each to produce.A salvage company will purchase the defective units as they are for $3 each.Patrick's production manager reports that the defects can be corrected for $5 per unit,enabling them to be sold at their regular market price of $12.50.Patrick should:

__________________________ costs are amounts that will continue even if a segment is eliminated.

Wages from a job a student gives up to attend summer school would be a sunk cost.

To determine a product selling price based on the total cost method,management should include:

Which of the following should be classified as production costs?

An ______________________________ is the potential benefit lost by taking a specific action when two or more alternative choices are available.

A local learning center is considering replacing the computers in its facility with thin client technology,thereby eliminating the need for individual computers at each station in the lab.The cost to purchase and install this new technology is $450,000 and it is projected to last for six years.The existing computers have a book value of $70,000 and a market value of $18,000 if they were to be sold.They expect to save a fair amount of money in maintenance costs and software upgrades if they go to the new technology. Required: a.What would the annual savings have to be in order to warrant the replacement of the existing computers with the thin client technology? b.What would the annual savings have to be in order to warrant the replacement of the existing computers with the thin client technology if the existing computers have no current market value?

A company inadvertently produced 5,000 defective portable MP3 players.The players cost $22 each to be manufactured.A salvage company will purchase the defective units as they are for $18 each.The production manager reports that the defects can be corrected for $10 per unit,enabling the company to sell them at the regular price of $33.The repair operations would not affect other production operations.Prepare an analysis that shows which action should be taken.

Employee morale,timeliness of delivery,and the reactions of customers are examples of nonfinancial factors that should be considered when making a managerial decision.

A company manufactures three products.Each unit of product X requires 10 machine hours,each unit of product Y requires 4 machine hours,and each unit of product Z requires 6 machine hours.The company's productive capacity is limited to 180,000 machine hours.Each unit of product X sells for $15 and has variable costs of $7.Each unit of product Y sells for $8 and has variable costs of $3.Each unit of Z sells for $12 and has variable costs of $4. Required: a.Calculate the contribution margin per hour of each of the products. b.Determine the preferred sales mix if there are no market constraints on any of the products. c.Determine the preferred sales mix if the demand is limited to 20,000 units of each.