Exam 30: Cost-Revenue Analysis for Decision Making

Analyze the following divisions of Johannes' Clothing Company.Management has to make a decision whether to close one of the divisions or keep both open.Make a recommendation to management based on the information given.Of the fixed costs,parts are controllable within the divisions,but $31,000 of the total are company headquarters fixed costs.Of these,$16,000 are allocated to the Skirt Division and $15,000 to the Shirt Division.

Using the absorption method,the net income for year is:

Contribution margin is calculated by

If a decision must be made about whether to replace a machine,the ____________________ value of the existing machine is irrelevant.

The direct costing procedure is used for financial reporting.

Under direct costing,all fixed manufacturing overhead is charged off as a current expense.

Under direct costing,all fixed costs are expensed in the period incurred,including fixed selling and administrative costs.

Marginal income on sales is the equivalent of contribution margin since both take all variable costs into consideration.

The data given below is taken from the budgeted income statement of the Arrow Corporation for 2013.It shows the projected net income or loss for each of the firm's three products.Management is concerned about the budgeted loss for Product C and wants to discontinue it.Prepare an analysis indicating the effects of discontinuing Product

GAAP requires the use of absorption costing method for financial reporting.

Which of the following is the first step in the decision-making process?

The contribution margin income statement with segment margin information assists management in making sound decisions regarding whether to drop,keep or add a segment.

Using direct costing,the marginal income on sales is:

Timkon Manufacturing has provided the following operating results for its recent operations: Net income under the direct (variable)costing method is:

Fixed manufacturing costs are written off as current expenses of the period in which they occurred when using

A cost that has already been incurred and is irrelevant for decision-making purposes is called a(n)____________________ cost.

In its first year of operations,a company has sales of $150,000,ending finished goods inventory of $10,000,variable manufacturing costs of $50,000,and fixed manufacturing costs of $30,000 for the year.The company pays 10% commission to its sales force and has fixed selling and administrative expenses of $25,000 annually.The company has no other variable expenses.Assuming the company uses direct costing,the net income for the year is

Which of the following is NOT a consideration when determining whether to continue making a part or to buy that part?

The Alvarado Equipment Corporation is currently manufacturing a part that goes into its main product.Each year 2,500 of these parts are used.Cost data for the past year that relates to the 2,500 parts is given below.Fixed costs are allocated on the basis of direct labor hours.An outside company has offered to supply the part for $45 a unit,plus a shipping charge of $2 a unit.The plant capacity now used by Alvarado to manufacture the part would not be used within the foreseeable future if the part is purchased outside. Prepare an analysis comparing the unit cost of manufacturing the part with the unit cost of purchasing it.Based on the analysis,indicate the decision that should be made.

Differential cost analysis emphasizes evaluating alternatives by computing the differences in relevant costs.