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

____ are future costs that differ across alternatives.

The Bilko Company manufactures two products: widgets and gadgets. Information about the products is as follows: There are 40,000 direct labour hours available during the year. Required: a. Which of the products should Bilko Company produce if it can only produce one of the products? b. Assume that Bilko Company uses half of the hours available to produce widgets and half of the hours available to produce gadgets. What is Bilko's total contribution margin? c. Assume that Bilko Company produces the product mix that will maximize profit. What is Bilko's total contribution margin?

Which of the following BEST describes relevant costs?

Harris Company uses 5,000 units of part AA1 each year. The cost of manufacturing one unit of part AA1 at this volume is as follows: An outside supplier has offered to sell Harris Company unlimited quantities of part AA1 at a unit cost of £31.00. If Harris Company accepts this offer, it can eliminate 50 per cent of the fixed costs assigned to part AA1. Furthermore, the space devoted to the manufacture of part AA1 would be rented to another company for £24,000 per year. If Harris Company accepts the offer of the outside supplier, annual profits will

Mills SA. manufactures 50,000 components per year. The manufacturing cost per unit of the components is as follows: An outside supplier has offered to sell the component to Mills SA. for £35. Required: a. What is the effect on income if Mills SA. purchases the component from the outside supplier? b. Assume that Mills SA. can avoid £700,000 of the total fixed overhead costs if it purchases the components. Now what is the effect on income if Mills SA. purchases the component from the outside supplier?

The Titanic hit an iceberg and sank. In deciding whether or not to salvage the ship, its book value is a(n)

Application of the theory of constraints will improve all of the following EXCEPT

Solomon Company manufactures 20,000 components per year. The manufacturing cost per unit of the components is as follows: Assume that the fixed overhead reflects the cost of Solomon's manufacturing facility. This facility cannot be used for any other purpose. An outside supplier has offered to sell the component to Solomon for £32. Required: a. What is the effect on income if Solomon purchases the component from the outside supplier? b. Assume that Solomon can avoid £50,000 of the total fixed overhead costs if it purchases the components. Now what is the effect on income if Solomon purchases the component from the outside supplier?

Tactical decision-making relies

Caddo Ltd. produces two products using the same manufacturing equipment. Information about the two products is as follows: If Caddo can produce only one of the products in the next period, which product should be produced?

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

Figure 9-8 Walton Company manufactures a product with the following costs per unit at the expected production level of 84,000 units: The company has the capacity to produce 90,000 units. The product regularly sells for £120. -Refer to Figure 9-8. If a wholesaler offered to buy 4,500 units for £100 each, the effect of the special order on income would be a

Junior Company currently buys 30,000 units of a part used to manufacture its product at £40 per unit. Recently the supplier informed Junior Company that a 20 per cent increase will take effect next year. Junior has some additional space and could produce the units for the following per-unit costs (based on 30,000 units): If the units are purchased from the supplier, £200,000 of fixed costs will continue to be incurred. In addition, the plant can be rented out for £20,000 per year if the parts are purchased externally. Required: Should Junior Company buy the part externally or make it internally?

Figure 9-2 Vest Industries manufactures 40,000 components per year. The manufacturing cost of the components was determined as follows: An outside supplier has offered to sell the component for £12.75. -Refer to Figure 9-2. What is the effect on income if Vest purchases the component from the outside supplier?

Scott Company has an annual capacity of 18,000 units. Budgeted operating results for 2011 are as follows: A foreign wholesaler wants to buy 1,000 units at a price of £40 per unit. All fixed costs would remain within the relevant range. Variable selling costs on the special order would be the same as variable selling costs for regular orders. Required: a. Determine the effect on operating income if the company produces the special order. b. Should the company produce the special order? c. Determine operating income if the customer had wanted a special order of 3,000 units and the company produced the special order. d. Should the company produce the 3,000-unit special order? e. Discuss any nonquantitative factors the company might want to consider when making the decision.

The operations of Smits Ltd. are divided into the Childs Division and the Jackson Division. Projections for the next year are as follows: Operating income for Smits Ltd. as a whole if the Jackson Division were dropped would be

Houston Ltd. manufacturers a part for its production cycle. The costs per unit for 5,000 units of this part are as follows: Johnson Company has offered to sell Houston Ltd. 5,000 units of the part for £112 per unit. If Houston Ltd. accepts Johnson Company's offer, total fixed costs will be reduced to £60,000. What alternative is more desirable and by what amount is it more desirable?

Describe the Theory of Constraints and discuss some of its implications for management.

Figure 9-9 Boone Products had the following unit costs: -Refer to Figure 9-9. A one-time customer has offered to buy 1,000 units at a special price of £48 per unit. Assuming that sufficient unused production capacity exists to produce the order and no regular customers will be affected by the order, how much additional profit (loss) will be generated from the special order?

Which of the following is a qualitative factor that should be considered when evaluating a make-or-buy decision?