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

Lemon Manufacturing Company produces three products using a joint process that 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 Product Sales Value at Split-off Costs after Split-off Sales Value at Completion \ 12 \ 9 \ 21 10 4 17 15 6 19 Product B:

Past costs can be good predictors of future costs.

The original cost of equipment less accumulated depreciation

Feliz Company provided the following information regarding its one and only product -skateboards. 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 contribution margin if the contribution approach is used.

Super Cooper Company currently produces a key part at a total cost of $210,000. Variable costs are $170,000. Of the fixed cost, $10,000 relate specifically to this part. The remaining fixed costs are unavoidable. Another manufacturer has offered to supply the part for $190,000. The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of $30,000. Alternately, the facilities could be rented out at $60,000. Given all of these alternatives, is Super Cooper's lowest net cost for the part.

is not likely to be relevant in a decision concerning the disposal of obsolete inventory.

Beyonce is considering leaving her current position to open a music store. Beyonce's current salary is $45,000. Annual music store revenue and costs are estimated at $250,000 and $210,000, respectively. If Beyonce decides to open the music store, the change in her annual income would be:

Scrooge Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 11,000 units of this part are as follows: Direct materials \ 25,000 Direct labor 34,000 Variable factory 65,000 overhead Fixed factory overhead \1 74,000 Of the fixed factory overhead costs, $9,000 is avoidable. Required: a. Assuming there is no alternative use for the facilities, should Scrooge Company take advantage of an offer from a supplier who is willing to sell Scrooge Company 11,000 units of the same part for $12.50 per unit? b. Would your answer to Part A change if the facilities could be rented for $10,000 a year?

The cost of inventory is relevant when deciding whether to dispose of the inventory in cases of obsolescence.

The difference in total cost (revenue) between two alternatives

The costs of manufacturing joint products prior to the split- off point

Wholesome Company paid $130,000 for a machine used to mill oats. The annual contribution margin from oat sales is $60,000. The machine could be sold for $90,000. The opportunity cost of producing wheat flour is:

Andrew Company provided the following information regarding its one and only product -skateboards. Direct materials used \ 350,000 Direct labor 170,000 Fixed overhead 80,000 Variable overhead 20,000 Variable selling and administrative 90,000 Units produced and sold 40,000 The manufacturing cost per unit by using the absorption approach is:

Cocoa Beach Company is considering replacing a machine that is presently used in the production of its product. The following data are available: Replacement Old Machine M achine Original cost \ 333,000 \ 222,000 Useful life in years 10 5 Current age in years 5 0 Book value \ 100,000 - Disposal value now \ 32,000 - Disposal value in 5 years 0 0 Annual cash operating \ 20,000 \ 14,000\ text costs Ignoring income taxes, the difference in cost between the old and new machine is:

Belize 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 X \ 128,000 \ 16,000 \ 160,000 Y 50,000 26,000 76,000 Z 25,600 20,000 40,000 In processing Product Z further:

Finch Company manufactures a part for its production cycle. The costs per unit for 5,000 units of this part are as follows: Direct materials \ 3 Direct labor 5 Variable factory overhead 4 Fixed factory overhead Total costs \ 14 The fixed factory overhead costs are unavoidable. Scalding Corporation has offered to sell 5,000 units of the same part to Finch Company for $15 a unit. Assuming no other use for the facilities, Finch Company should:

Future costs are relevant in decision making when:

The relevant information for a sell or process further decision includes the costs incurred before the split- off point.

Opportunity cost is specifically mentioned in:

In practice, sunk costs often influence important decisions, especially when a decision maker does not want to admit that a previous decision was a bad decision.