Exam 9: Measuring Relevant Costs and Revenues for Decision-Making

Future costs that differ across alternatives describe

Throughput is calculated as

Vance Company manufactures a product that has the following unit costs: direct materials, £15; direct labour, £12; variable overhead, £8; and fixed overhead, £12. Fixed selling costs are £1,500,000 per year. Variable selling costs of £4 per unit cover the transportation cost. Although production capacity is 800,000 units per year, the company expects to produce only 650,000 units next year. The product normally sells for £70 each. A customer has offered to buy 50,000 units for £45 each. The customer will pay the transportation charge on the units purchased. Required: a.What is the incremental cost to Vance Company for the special order? b.What is the effect on Vance's income if the special order is accepted?

A purchasing agent has two potential firms from which to buy materials for production. If both firms charge the same price, the material cost is a(n)

An important qualitative factor to consider regarding a special order is the

Figure 9-5 Reggie Ltd. manufactures a single product with the following unit costs for 1,000 units: Direct materials £2,400 Direct labour 960 Factory overhead (30\% variable) 1,800 Selling expenses ( 50\% variable) 900 Administrative expenses (10\% variable) 840 Total per unit £6,900 Recently, a company approached Reggie Ltd. about buying 100 units for £5,100 each. Currently, the models are sold to dealers for £7,800. Reggie Ltd.'s capacity is sufficient to produce the extra 100 units. No additional selling expenses would be incurred on the special order. -Refer to Figure 9-5. What is the profit earned by Reggie Ltd. on the original 1,000 units?

Figure 9-1 Foster Industries manufactures 20,000 components per year. The manufacturing cost of the components was determined as follows: Direct materials £150,000 Direct labour 240,000 Variable manufacturing overhead 90,000 Fixed manufacturing overhead -120,000 Total £600,000 An outside supplier has offered to sell the component for £25.50. -Refer to Figure 9-1. What is the effect on income if Foster Industries purchases the component from the outside supplier?

Figure 9-5 Reggie Ltd. manufactures a single product with the following unit costs for 1,000 units: Direct materials £2,400 Direct labour 960 Factory overhead (30\% variable) 1,800 Selling expenses ( 50\% variable) 900 Administrative expenses (10\% variable) 840 Total per unit £6,900 Recently, a company approached Reggie Ltd. about buying 100 units for £5,100 each. Currently, the models are sold to dealers for £7,800. Reggie Ltd.'s capacity is sufficient to produce the extra 100 units. No additional selling expenses would be incurred on the special order. -Refer to Figure 9-5. How much will income change if the special order is accepted?

Qualitative factors that should be considered when evaluating a make-or-buy decision are

Bonilla Ltd., which produces one product, had the following income statement for a recent month: Bonilla Ltd. Income Statement For the Month of April 2011 Sales £30,000 Cost of goods sold - Gross profit £3,000 Selling and administrative 2,500 Net income £500 There were no beginning or ending inventories of work-in-process or finished goods. Bonilla's manufacturing costs were as follows: Direct materials (1,200 units \times£5) £6,000 Direct labour (1,200 units \times£8) 9,600 Variable overhead (1,200 units \times£4.50) 5,400 Fixed overhead Total Average cost per unit Selling and administrative expenses are all fixed. Bonilla has just received a special order from a firm in Canada to purchase 800 units at £20 each. The order will not affect the selling price to regular customers. a.Prepare a differential analysis of the relevant costs and revenues associated with the decision to accept or reject the special order, assuming Bonilla has excess capacity. b.Determine the net advantage or disadvantage (profit increase or decrease) of accepting the order, assuming Bonilla does not have excess capacity.

Salish Industries manufactures a product with the following costs per unit at the expected production of 60,000 units: Direct materials £8 Direct labour 15 Variable manufacturing overhead 10 Fixed manufacturing overhead 12 The company has the capacity to produce 70,000 units. The product regularly sells for £60. A wholesaler has offered to pay £55 each for 5,000 units. If the special order is accepted, the effect on operating income would be a

Which of the following costs is NOT relevant to a make-or-buy decision?

Figure 9-6 The following information relates to a product produced by Creamer Company: Direct materials £24 Direct labour 15 Variable overhead 30 Fixed overhead 18 Unit cost £87 Fixed selling costs are £500,000 per year, and variable selling costs are £12 per unit sold. Although production capacity is 600,000 units per year, the company expects to produce only 400,000 units next year. The product normally sells for £120 each. A customer has offered to buy 60,000 units for £90 each. -Refer to Figure 9-6. If the firm produces the special order, the effect on income would be a

A decision to make a component internally versus through a supplier is a

A decision that focuses on whether a specially priced order should be accepted or rejected is a

The Dot Company manufactures two products: X and Y. The contribution margin per unit is determined as follows: X Y Sales £130 £80 Variable costs 70 38 Contribution margin Total demand for Product X is 16,000 units and for Product Y is 8,000 units. Machine hours is a scarce resource. During the year, 42,000 machine hours are available. Product X requires 6 machine hours per unit, while Product Y requires 3 machine hours per unit. How many units of Products X and Y should Dot Company produce? Product X Product Y a. 16,000 -0- b. 8,000 4,000 c. 7,000 -0- d. 3,000 8,000

Which of the following costs is NOT relevant to a make-or-buy decision?