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

Figure 9-3 Miller Company produces speakers for home stereo units. The speakers are sold to retail stores for £30. Manufacturing and other costs are as follows: The variable distribution costs are for transportation to the retail stores. The current production and sales volume is 20,000 per year. Capacity is 25,000 units per year. -Refer to Figure 9-3. An Atlanta wholesaler has proposed to place a special one-time order for 7,000 units at a special price of £25.20 per unit. The wholesaler would pay all distribution costs, but there would be additional fixed selling and administrative costs of £6,000. In addition, assume that overtime production is not possible and that all other information remains the same as the original data. What is the effect on profits if the special order is accepted?

Figure 9-5 Reggie Ltd. manufactures a single product with the following unit costs for 1,000 units: 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. If Reggie Ltd. wants to increase its profit by £18,000 on the special order, what is the minimum price it should charge per unit?

Figure 9-1 Foster Industries manufactures 20,000 components per year. The manufacturing cost of the components was determined as follows: 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?

Reggie Ltd. manufactures a single product with the following unit costs for 1,000 units: Recently, a company approached Reggie Ltd. about buying 100 units for £5,100 each. Currently, the models are sold to dealers for £7,800. Assume there is additional capacity for 60 more units and the firm has to reduce regular customer sales by 40 units in order to contract the special order. There are selling expenses on only the sales to the regular customers. What is the net income if the special order of 100 units is accepted?

Describe the theory of constraints (TOC) and how it can be used to manage inventory.

Figure 9-6 The following information relates to a product produced by Creamer Company: 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. The incremental cost per unit associated with the special order is

Throughput is calculated as

Figure 9-5 Reggie Ltd. manufactures a single product with the following unit costs for 1,000 units: 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?

Figure 9-3 Miller Company produces speakers for home stereo units. The speakers are sold to retail stores for £30. Manufacturing and other costs are as follows: The variable distribution costs are for transportation to the retail stores. The current production and sales volume is 20,000 per year. Capacity is 25,000 units per year. -Refer to Figure 9-3. A San Diego wholesaler has proposed to place a special one-time order of 10,000 units at a reduced price of £24 per unit. The wholesaler would pay all distribution costs, but there would be additional fixed selling and administrative costs of £3,000. All other information remains the same as the original data. What is the effect on profits if the special order is accepted?

Figure 9-7 Meco Company produces a product that has a regular selling price of £360 per unit. At a typical monthly production volume of 2,000 units, the product's average unit cost of goods sold amounts to £270. Included in this average is £120,000 of fixed manufacturing costs. All selling and administrative costs are fixed and amount to £30,000 per month. Meco Company has just received a special order for 1,000 units at £240 per unit. The buyer will pay transportation, and the regular selling price will not be affected if Meco accepts the order. -Refer to Figure 9-7. Assuming Meco Company has excess capacity, the effect on profits of accepting the order would be

Firms may be asked to accept a special order of their product for a reduced price if

If a firm is at full capacity, the minimum special order price must cover

Rose Manufacturing Company had the following unit costs: A one-time customer has offered to buy 2,000 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 by accepting the special order?

Relevant costs are

The operations of Grant Ltd. are divided into the Fix Division and the Roach Division. Projections for the next year are as follows: Required: a. Determine operating income for Grant Ltd. as a whole if the Roach Division is dropped. b. Should the Roach Division be eliminated?

Gundy Company manufactures a product with the following costs per unit at the expected production of 30,000 units: The company has the capacity to produce 40,000 units. The product regularly sells for £40. A wholesaler has offered to pay £32 a unit for 2,000 units. If the firm is at capacity and the special order is accepted, the effect on operating income would be

Which of the following statements is true when making a decision between two alternatives?

Figure 9-4 The following information pertains to Ewing Company's three products: -The following information pertains to Dodge Company's three products: Assume that product C is discontinued and the extra space is rented for £300 per month. All other information remains the same as the original data. Annual profits will

Salish Industries manufactures a product with the following costs per unit at the expected production of 60,000 units: 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

What is a sunk cost? Under what circumstances are sunk costs relevant to a decision? Construct an example of a sunk cost. Briefly discuss why you think financial reports for investors and managerial reports for mangers may or may not differ in their treatment of sunk costs.