FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 23: Relevant Costing for Managerial Decisions

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 31

True/False

Review LaterAdd Note

Review Later

A special order of goods or services should always be accepted when the incremental revenue exceeds the normal revenue.

A) True
B) False

Correct Answer

verified

Show Answer

Question 32

Multiple Choice

Review LaterAdd Note

Review Later

Bath Company has a limited amount of direct material available for products 111 and 222. Each unit of 111 has a contribution margin of $5 and each unit of 222 has a contribution margin of $25. A unit of 222 uses four times as much direct material as a unit of 111. What is Bath's most profitable sales mix, assuming there is unlimited demand for either product?

A) Make all 222.
B) Make all 111.
C) Make equal number of units of 111 and 222.
D) Make four times as many 111 as 222.
E) Make four times as many 222 as 111.

F) A) and B)
G) C) and E)

Correct Answer

verified

Show Answer

Question 33

True/False

Review LaterAdd Note

If accepting additional business would cause existing sales to decline, the offer should always be declined.

A sunk cost will change with a future course of action.

A company has already incurred an $81,000 cost in partially producing its three products. Their selling prices when partially and fully processed are shown in the table below with the additional costs necessary to finish their processing. Based on this information, should any products be processed further? $\begin{array} { | c | c | c | c | } \hline \text { Product } & \begin{array} { c } \text { Unfinished } \\\text { Selling Price }\end{array} & \begin{array} { c } \text { Finished } \\\text { Selling Price }\end{array} & \begin{array} { c } \text { Further } \\\text { Processing } \\\text { Costs }\end{array} \\\hline \text { A } & \$ 43.20 & \$ 81.10 & \$ 29.74 \\\hline \text { B } & \$ 51.16 & \$ 85.73 & \$ 36.61 \\\hline \text { C } & \$ 70.50 & \$ 97.22 & \$ 23.32 \\\hline\end{array}$

Romulus Company has 21,000 units of its sole product that it produced last year at a cost of $67 each. This year's model is superior to last year's and the 21,000 units cannot be sold for their regular selling price of $102 each. Romulus has two alternatives for these items: (1) they can be sold to a wholesaler for $38 each, or (2) they can be reworked at a total cost of $258,000 and then sold for $73 each. The company has enough idle capacity to rework these items without affecting any new production. Which choice would increase the company's profits the most?

Relevant costs are also known as ___________________.

Marsden manufactures a cat food product called Special Export. Marsden currently has 10,000 bags of Special Export on hand. The variable production costs per bag are $1.80 and total fixed costs are $10,000. The cat food can be sold as it is for $9.00 per bag or be processed further into Prime Cat Food and Feline Surprise at an additional $2,000 cost. The additional processing will yield 10,000 bags of Prime Cat Food and 3,000 bags of Feline Surprise, which can be sold for $8 and $6 per bag, respectively. -The net advantage (incremental income) of processing Special Export further into Prime and Feline Surprise would be:

Sales mix refers to the combination of products sold by a company.

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 $30.00. The repair operations would not affect other production operations. Prepare an analysis that shows which action should be taken.

Highbank Company is operating at 80% of its manufacturing capacity of 62,000 product units per year. A customer has offered to buy an additional 10,000 units at $17 each and sell them outside the country so as not to compete with Highbank. The following data are available: In producing 10,000 additional units fixed overhead costs would remain at their current level but incremental variable overhead costs of $0.75 per unit would be incurred. What is the effect on total income if Highbank accepts this order?

A company produces three different products that all require processing on the same machines. There are only 27,000 machine hours available in each year. Production information for each product is: Required: (1) Determine the preferred sales mix if there are no market constraints on any of the products. (2) Determine the preferred sales mix if the demand is limited to 5,000 units for each product. (3) Determine the preferred sales mix if the demand is limited to 3,000 units for each product.

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

A local learning center is considering replacing the computers in their 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 6 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. (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?

Paz Inc. manufactures a product which contains a small motor. The company has always purchased this motor from a supplier for $55 each. Paz recently upgraded its own manufacturing capabilities and now has enough excess capacity (including trained workers) to begin manufacturing the motor instead of buying it. The company prepared the following per unit cost projections of making the motor, assuming that overhead is allocated to the part at the normal predetermined overhead rate of 150% of direct labor cost. The required volume of output to produce the motors will not require any incremental fixed overhead. Incremental variable overhead cost is $21 per motor. What is the effect on income if Paz decides to make the motors?

A company expects to produce and sell 9,000 units of a single product. Management desires an 18% return on assets of $1,750,000. The following additional company information is available: $\begin{array}{cr}\text { Variable costs (per unit) }\\\text { Production costs } & \$ 79 \\\text { Nonproduction costs } & \$ 5 \\\text { Fixed costs (in total) } & \\\text { Overhead } & \$ 279,000 \\\text { Nonproduction } & \$ 90,000\end{array}$ Compute markup per unit. Assume that markup percentage equals desired profit divided by total costs.

Teeco Systems Inc. has a limited amount of direct material available for products 1A1 and 2B2. Each unit of 1A1 has a contribution margin of $12 and each unit of 2B2 has a contribution margin of $30. A unit of 2B2 uses three times as much direct material as a unit of 1A1. What is Teeco's most profitable sales mix, assuming there is unlimited demand for either product? $\begin{array} { l c c } & \text { Cap A } & \text { Cap B } \\\text { Selling price per unit } & \$ 80 & \$ 60 \\\text { Variable costs per unit } & 53 & 42\end{array}$

A company paid $400,000 five years ago for a specialized machine that has no salvage value and is being depreciated at the rate of $40,000 per year. The company is considering using the machine in a new project that will have incremental revenues of $48,000 per year and annual cash expenses of $30,000. In analyzing the new project, the $40,000 depreciation on the machine is an example of a(n) :

A company is considering a new project that will cost $19,000. This project would result in additional annual revenues of $6,000 for the next 5 years. The $19,000 cost is an example of a(n) :

What are the four steps of the total cost method of determining a product selling price?