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Exam 10: Relevant Costing for Managerial Decisions

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Question 51

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

A) True
B) False

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Question 52

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Variations Company had the following results of operations for the past year: A foreign company offers to buy 700 units at $4 per unit. In addition to variable manufacturing costs, there would be an export cost of $0.30 per unit. Prepare an analysis of this additional business to show whether Variations should take this order.

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Thus, since operati...

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Question 53

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A company's best sales mix is determined using contribution margin per unit of scarce resource.

A company has the choice of either selling 600 apples or processing them into applesauce. The company could sell the apples as they are for $2.00 per unit. Alternatively, each apple could be made into one unit of applesauce with incremental costs of $0.60 per unit for direct materials, $1.00 per unit for direct labor, and $0.80 per unit for overhead, and then sold for $5.00 each. What is the amount of incremental cost from processing the apples into applesauce?

A ________ is the combination of products sold by a company.

Carns Company is considering eliminating its small tools division, which reported an operating loss for the recent year of $85,000. Division sales for the year were $1,310,000 and its variable costs were $1,175,000. The fixed costs of the division were $220,000. If the kitchen division is dropped, 45% of the fixed costs allocated it could be eliminated. The impact on Carns's operating income from eliminating the small tools division would be:

Pinkin Inc. needs to determine a price for a new phone model. Pinkin desires a 25% markup on the total cost of the phone. Pinkin expects to sell 30,000 phones. Additional information is as follows: Using the total cost method what price should Pinkin charge?

Relevant costs are also known as ________.

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

JK Company can sell all of the plush and supreme products it can produce, but it has limited production capacity. It can produce 4 plush units per hour or 2 supreme units per hour, and it has 2,000 production hours available. Contribution margin per unit is $214 for the plush product and $300 for the supreme product. What is the total contribution margin if JK chooses the most profitable sales mix?

iSooky has a spotter truck with a book value of $40,000 and a remaining useful life of five years. At the end of the five years the spotter truck will have a zero salvage value. The market value of the spotter truck is currently $32,000. iSooky can purchase a new spotter truck for $120,000 and receive $31,000 in return for trading in its old spotter truck. The new spotter truck will reduce variable manufacturing costs by $25,000 per year over the five-year life of the new spotter truck. The costs not relevant to the decision of whether or not to replace the spotter truck are:

The decision to sell or process a product further is analyzed by identifying the incremental costs and benefits of further processing.

Dragoo Building Inc. has a crane with a book value of $240,000 and a four-year remaining life. A new crane is available at a cost of $615,000. Dragoo can also receive $48,000 for trading in the old pump. The new crane will reduce variable costs by $145,000 per year over its four-year life. The total impact to Dragoo over the crane's four-year life is:

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

Goodfellow Company had the following results of operations for the past year: A foreign company offers to buy 2,000 units at $5.00 per unit. In addition to variable manufacturing costs, there would be shipping costs of $1,200 in total on these units. Prepare an analysis of this additional business to show whether Goodfellow should take this order.

Epsilon Co. can produce a unit of product for the following costs: An outside supplier offers to provide Epsilon with all the units it needs at $60 per unit. If Epsilon buys from the supplier, the company will still incur 40% of its overhead. Epsilon should choose to:

Sunk costs are irrelevant to future decisions as they cannot be changed or avoided.

Yelk Garage uses time and materials pricing. It is setting prices for next year using the following information: What should Yelk set as the materials markup per dollar of materials used?

Weng CPAs charges for their services based on the following: Using time and materials pricing, what is the total price for services requiring 8 labor hours and $50 of materials?

Incremental costs are the additional costs incurred if a company pursues a certain course of action.