Exam 5: Relevant Information and Decision-Making: Marketing Decisions

Costs of facilities and services that are shared by users

There will not be occasions when irrelevant data will be included in the accountant's presentation of analysis.

Marginal revenue is the additional revenue resulting from the sale of an additional unit.

In determining whether to purchase a labor saving machine, extreme resistance to the machine would be:

If the limiting factor is demand (i.e., unit of sales), the more profitable product is the one with the higher contribution per unit.

Price elasticity measures:

Perry Corporation has been producing and selling 40,000 caps a year. The company has the capacity to produce 50,000 caps with its present facilities. The following information is also available: Selling price per unit \3 0 Variable costs per unit: Manufacturing 11 Selling and A dmini strative 5 Fixed costs in total: Manufacturing \1 28,000 Selling and Admini strative 56,000 The least that Perry would be willing to sell a cap for in the short run would be:

In analyzing costs to decide whether to accept a special order, total variable costs should be investigated to see how much fixed manufacturing costs per unit will be changed by the special order.

Couch Company can produce either product A or product B. If Couch Company produces product A, expected direct material cost will be $24,000. If Couch Company produces product B, expected direct material cost will be $24,000. In choosing between these alternatives, the $24,000 direct material cost is:

Marginal cost is the additional cost resulting from producing and selling one additional unit.

In perfect competition, the profit- maximizing volume is the quantity at which:

In deciding whether to add or drop new products, services, or departments, managers should emphasize the option that makes the greatest contribution possible to pay unavoidable costs.

Full cost or fully allocated cost means the total of all manufacturing costs.

With increased global competition in many industries, companies are increasingly limited in influencing market prices.

Agassi Industries budgeted the following costs for the production of its one and only product, tennis balls, for the next fiscal year: Materials \ 35,000 Labor 25,000 Overhead: Variable 30,000 Fixed 15,000 Selling and administrative: Variable 7,500 Fixed Total costs \ 125,000 Agassi Industries has a target profit of $30,000. The average target markup for setting prices as a percentage of total variable costs would be:

Target costing sets prices by computing an average cost then adding a desired markup.

Kennedy, Inc. provided the following information regarding its one and only product-a skateboard: Fixed manufacturing costs \ 420,000 Fixed selling and adminis trative costs 80,000 Fixed manufacturing costs 42,000 Fixed selling and adminis trative costs 80,000 Variable manuf acturing costs 1,550,000 Variable s elling and administrative costs 220,000 Selling unit price 100 Units produced and sold 20,000 is the variable cost per unit of a skateboard using the contribution approach.

The effect of price changes on sales volume

Each quarter Sioux Company produces 30,000 units of a product that has variable costs of $60 per unit. Total fixed costs for the quarter are $990,000. A special order is received for 1,000 units at a price of $77 per unit. In deciding to accept or reject this special order, it is appropriate to consider the:

Bell Company manufactures two tables, Small and Large. The following data is available: Small Large Selling price p er unit \ 100 \ 210 Variable cost per unit \ 68 \ 138 M achine hours required 3.2 10 Total fixed costs \ 9,600 Bell Company can sell a maximum of 1,000 units of each size of table. Machine hour capacity is 8,000 hours per year. Required: a. Which table has the higher contribution margin per unit? b. Which table has the higher contribution margin per hour? c. How many tables of each size should be produced to maximize income, and what is the maximum income?