Exam 6: Relevant Information and Decision-Making: Product Decisions

If a company has excess capacity, the most it would pay for buying a product that it currently makes would be the:

Sunk cost is another term for historical cost or past cost.

is the juncture in manufacturing where the joint products become individually identifiable.

Bermuda Triangle Corporation has a joint process which produces three products: X, Y, and Z. Each product may be sold at split- off or processed further and then sold. Joint processing costs for a year amount to $100,000. Other relevant data are as follows: Separable Processing Sales V alue at Costs after Sales Value at Product Split- off Completion \ 128,000 \ 16,000 \ 160,000 50,000 26,000 76,000 25,600 20,000 40,000 To maximize profits, Bermuda Triangle Corporation should process further.

Hawaii Corporation has a joint process which produces three products: X, Y, and Z. Each product may be sold at split- off or processed further and then sold. Joint processing costs for a year amount to $100,000. Other relevant data are as follows: Separable Processing Sales V alue at Costs after Sales Value at Product Split- off Completion \ 128,000 \ 16,000 \ 160,000 50,000 26,000 76,000 25,600 20,000 40,000 Product Y:

The disposal value of old equipment is relevant.

Depreciation on new equipment is relevant in deciding whether to keep or replace equipment.

Lynnette is considering leaving her current position to open an ice cream shop. Lynnette's current salary is $77,000. Annual ice cream shop revenue and costs are estimated at $250,000 and $210,000, respectively. is the opportunity cost of remaining employed.

Equipment's book value is the original cost plus depreciation.

A costing approach that considers all factory overhead as product cost

Sharon is considering leaving her current position to open a coffee shop. Sharon's current salary is $83,000. Annual coffee shop revenue and costs are estimated at $250,000 and $210,000, respectively. Is the opportunity cost of opening the coffee shop.

The sum of all depreciation charged to past periods

Orange Manufacturing Company produces three products using a joint process which accumulates $25,000 in joint costs. The products, A, B, and C, can be sold at split- off or processed further and then sold. The production level for each product is 10,000 units. The following unit information is also available: Separable Processing Sales V alue at Costs after Sales Value at Product Split- off Completion \ 12 \ 9 \ 21 10 4 17 15 6 19 To maximize profits, Orange Manufacturing Company should process further.

Outsourcing is a make- or- buy decision for services.

Hogan Corporation has a joint process which produces three products: P, G, and A. Each product may be sold at split- off or processed further and then sold. Joint processing costs for a year amount to $25,000. Other relevant data are as follows: Separable Processing Sales V alue at Costs after Sales Value at Product Split- off Completion \ 32,000 \ 5,000 \ 40,000 16,500 7,500 29,000 6,400 8,000 10,000 Once product P is produced, processing it further will cause profits to:

Hola Company provided the following information regarding its one and only product-ice skates. Direct materials used \ 200,000 Direct labor 80,000 Fixed overhead 100,000 Fixed s elling and administrative costs 150,000 Variable overhead 20,000 Variable selling and administrative 60,000 Selling unit price 75 Units produced and sold 10,000 is the total manufacturing cost if the absorption approach is used.

Donald Company provided the following information regarding its one and only product -skateboards. Direct materials used \ 350,000 Direct labor 170,000 Fixed overhead 95,000 Variable overhe ad 20,000 Variable s elling and administrative 55,000 Units produced and sold 40,000 The manufacturing cost per unit, if the contribution approach is used, is:

When making a decision to replace some old equipment with new, the depreciation taken on both the old or new equipment is irrelevant information.

A method of internal reporting that emphasizes the distinction between variable and fixed costs

Williams Company has been producing and selling 100,000 units per year. They have excess capacity. The following budget was prepared for the next year: Selling price per unit \ 1250 Variable cost per unit: Direct materials \ 5.00 Direct labor 3.00 Overhead 1.00 Selling and administrative 25 Fixed costs in total: Overhead $\quad\quad\$ 80,000$ Sellingand administrative $\quad 35,000$ Required: a. Prepare an income statement using the contribution approach. b. Prepare an income statement using the absorption approach.