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

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

When there is one scarce resource, the product that should be produced first is the product with the highest

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)

Majestic Company manufactures a product that has the following unit costs: direct materials, £5; direct labour, £7; variable overhead, £3; and fixed overhead, £5. Fixed selling costs are £200,000 per year. Variable selling costs of £1 per unit cover the transportation cost. Although production capacity is 80,000 units per year, the company expects to produce only 65,000 units next year. The product normally sells for £30 each. A customer has offered to buy 10,000 units for £18 each. The customer will pay the transportation charge on the units purchased. Required: a. What is the incremental cost per unit to Majestic Company for the special order? b. What is the effect on Majestic's income if the special order is accepted?

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. A wholesaler has offered to pay £110 a unit for 7,500 units. If the special order is accepted, the effect on operating income would be a

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

The Dash Company manufactures two products: A and B. Information about the products is as follows: There are 5,000 machine hours available during the quarter. Required: a. Which of the products should Dash Company produce if it can only produce one of the products? b. Assume that Dash Company uses half of the hours available to produce Product A and half of the hours available to produce Product B. What is Dash's total contribution margin? c. Assume that Dash Company produces the product mix that will maximize profit. What is Dash's total contribution margin?

For a cost or revenue to be relevant to a particular decision, the cost or revenue must

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

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 Tennessee manufacturing firm has offered a one-year contract to supply speaker parts at a cost of £6.00 per unit. If Miller Company accepts the offer, it will be able to reduce variable costs by 30 per cent and rent unused space to an outside firm for £18,000 per year. All other information remains the same as the original data. What is the effect on profits if Miller Company buys from the Tennessee firm?

Future costs that differ across alternatives describe

KnitWorks Ltd. produces three kinds of yarn. Details of each type of yarn are as follows: KnitWorks has 15,000 machine hours available for production. Required: Assume that KnitWorks can sell all of each type of yarn that it produces. a. Determine the amount of each type of yarn that KnitWorks should produce. b. Assume that the demand for each type of yarn is limited to 10,000 units each. Determine the amount of each type of yarn that KnitWorks should produce. c. Assume that the demand for each type of yarn is limited to 10,000 units each. Determine KnitWorks' contribution margin.

Which item is not an example of a sunk cost?

The theory of constraints focuses on

Which of the following costs is NOT relevant for special decisions?

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 Industries purchases the component from the outside supplier?

The Dot Company manufactures two products: X and Y. The contribution margin per unit is determined as follows: 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?

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. If the firm produces the special order, the effect on income would be a

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

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?