Exam 11: Relevant Costs for Decision Making

Separable costs are the costs incurred after the split off point.

Separable costs are:

In making a special order decision, which of the following is a relevant fixed cost?

Assume the following cost data: Per-unit costs: Direct material \ 6 Direct labor \ 4 Variable overhead \ 2 Variable selling \ 4 Fxed overhead \ 300 Fxed selling \ 400 A special order for 100 units is received. The buyer wants his name stamped on each unit. This will increase labour costs by $1.00 per unit and cost $500 for the stamping machine. What price must be charged to earn $300 on the special order?

Non-routine operating decisions are often tactical decisions.

A manufacturer operating with excess capacity has been asked to fill a special order at $9.25 per unit. The regular price is $10 per unit. No other use of the currently idle capacity can be found. The manufacturer's usual variable costs per unit are $4.50 for direct materials, $3.00 for direct labour, $1.00 for variable overhead, and $1.50 for sales commission. No sales commission would be paid on this special order. The average fixed overhead cost per unit is $0.25. Under the general decision rule, the minimum price per unit for this special order is:

The sales value at split off point is most appropriate when most products are sold at split off point.

In multi-product firms, managers need to consider the effect on demand for other products when they make a keep or drop decision about one product.

The sales value at split off point method allocates joint costs based on the relative cost of sales at the point where joint production ends.

Citrus Ltd. produces 2 products A and B, each requiring direct material and labour. Total labour available is 200 hours, and 300 pounds of material. Each unit of A sells for $10, and B sells for $15. Given the following linear programming information: Maximise: \ 4+\ 5 Subject to: 3+1?200 2+2?300 What are the variable costs per unit for A and B?

In multi-product firms the variable costs of other product are relevant for keep or drop decisions.

In a linear programming problem, slack resources are the same as:

Qualitative factors are not relevant for special orders.

Duxeva produces two products named BigBlast and LittleBlast. Last month 2,000 units of BigBlast and 4,000 units of the LittleBlast were produced and sold. Following are average prices and costs for last month: $\begin{array}{lcc}&\underline{\text { BigBlast }}&\underline{\text { LittleBlast }}\\\text { Selling price } & \$ 100 & \$ 200 \\\text { Direct materials } & (25) & (75) \\\text { Direct labor } & (15) & (35) \\\text { Variable overhead } & (5) & (30) \\\text { Product line fixed costs } & (10) & (40) \\\text { Corporate fixed costs } &\underline{ (25) }&\underline{ (25) }\\\quad \text { Average margin per unit } &\underline{\underline{ \$ 20 }}& \underline{\underline{\$(5)}}\end{array}$ The production lines for both products are highly automated, so large changes in production cause very little change in total direct labour costs. Workers who are classified as direct labour monitor the production line and are permanent employees who regularly work 40 hours per week. All costs other than "corporate fixed costs" listed under each product line could be avoided if the product line were dropped. What is the breakeven sales volume (in units) for BigBlast? (In other words, what is the sales volume at which Duxeva should be financially indifferent between dropping and keeping BigBlast?)

Allocating joints affects the relative gross margin for individual products but not the total gross margin.

Constraints are limits on capacity, materials or labour.

Strategic decisions do not include decisions that impact beyond the current accounting period.

Sales value is an example of a measurement base that could be used in the physical output method.

The first step in the relevant analysis technique is to identify input variables.

Analysing the impact of the decision on quality is an example of considering qualitative factors.