Exam 4: Short-Term Decision Making

Use the following to answer questions Ogallah Inc. sells its product for $9.25 per unit. The variable costs per units are $2.50 and total fixed costs are $452,250. If Ogallah buys new software for the production process at a cost of $55,250, variable costs will be reduced by 20%. -Assuming Ogallah purchases the software,the breakeven point will be:

Use the following to answer questions JJ Enterprises currently manufactures two products, A and B. It is considering adding a new product, Product C. The following table shows current information for products A and B, as well as projected data for Product C. *NOTE: If Product C is produced, one-fourth of the company's common costs, which are fixed costs, will be allocated to Product C, with one-half and one-fourth allocated to products A and B, respectively. -If JJ Enterprises adds Product C,the total incremental cost will be:

Chill Out,Inc.manufactures a premium ceiling fan that sells for $650.The company expects to produce and sell 65,000 fans this year.The unit cost of a fan is shown below: The company recently received a special order from Big Box Store for 5,000 fans at a price of $475.Chill Out,Inc has the capacity to produce the extra 5,000 fans without affecting current sales.Determine whether Chill Out,Inc should accept or reject the special order.Are any of the above costs irrelevant to the decision? Which ones and why?

Meadow Glow Company desires an after-tax profit of $140,000.Its sales price and variable costs are $100 and $40 per unit,respectively.Fixed costs total $340,000.Assuming a 30% tax rate,how many units must Meadow Glow sell to achieve its desired profit?

Andante Company had sales of 1,500 units more than breakeven point.Andante's fixed costs are $450,000 and its contribution margin was $30 per unit.How much profit did Andante have?

"Fixed costs are never relevant in short-term operating decisions".Do you agree with that statement? Why or why not?

Direct labor is an example of a:

Adagio Company had sales of 2,500 units more than breakeven point.Adagio 's fixed costs are $500,000 and its contribution margin was $20 per unit.How many units did Adagio sell?

Opportunity costs:

Use the following to answer questions Ogallah Inc. sells its product for $9.25 per unit. The variable costs per units are $2.50 and total fixed costs are $452,250. If Ogallah buys new software for the production process at a cost of $55,250, variable costs will be reduced by 20%. -The breakeven point prior to the purchase of the computer is:

The contribution margin ratio is calculated as:

Using the items below classify each of the cost as U - unit related,B - batch related,P - product sustaining,F - facility sustaining,and N - non of the above _____ 1.Cost of the cables used in the equipment _____ 2.Set up cost to change from one piece of equipment to another _____ 3.Research cost incurred to develop new types of equipment _____ 4.Salary of the quality control inspector _____ 5.Cost of the oil used to cut metal tubing _____ 6.Insurance on factory equipment _____ 7.Wages of employees who put the equipment together _____ 8.Salary of warehouse foreman where raw material is stored _____ 9.Cost of shipping equipment to customers _____ 10.Shipping cost paid to get raw materials

Cameron Company is considering discontinuing production of one of its products and buying the product instead.Which of the following would not be relevant to this decision?

If a company increases the sales commission rate from 5% to 8% how will this impact the contribution margin and the breakeven point?

If only the fixed cost increase the breakeven point

The change in total revenue,if one alternative is implemented instead of another,is referred to as:

Transcom Corporation sells three types of intercom systems,the deluxe model,the superior model and the regular model.The profit report for these intercom systems for the most recent period is shown below by product line.The facility sustaining costs are fixed and allocated equally between each of the three product lines. Transcom has reviewed the data above and is trying to determine whether or not to drop the deluxe and regular models of their intercom system.Should Transcom drop one or both of the product lines? Justify your position given the data you have above.

If a manufacturer's cost of direct material increases,how will this affect breakeven point?

Explain the effect on breakeven point of an increase in (a)direct labor cost and (b)factory rent.