Exam 4: Short-Term Decision Making

Durango Company manufactures several products,one of which is a western style saddle.Total production costs for 5,000 saddles are as follows: Durango has been approached by a supplier who will sell the same saddle to Durango for $1,100 per saddle.Assume that Durango could rent its manufacturing facilities for $350,000 per year.Should Durango continue to make the saddle or should they buy the saddles? Explain the basis of your decision.

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. -The incremental income in the decision whether or not to manufacture Product C is:

The Foggy Daze Company sells a "one size fits all" rain poncho for $11.50.Variable costs per unit are $3.86,while total fixed costs amount to $572,200.The corporate tax rate is 30% and the company wants to earn an after-tax profit of $209,000.How many units must be sold to achieve the after-tax profit goal?

If variable cost per unit increases,how will this affect the contribution margin and breakeven point?

Kapalua,Inc.manufactures hand held planners.The selling price per unit is $355.00,with variable costs per unit of $91.50.The corporate tax rate is 35%.If Kapalua can sell 15,000 units and can earn an after-tax profit of $1,513,000,total fixed costs must be:

Assume a person is considering starting a new business and calculates the expected breakeven point for the business.Using the results of the breakeven analysis,what should be the next step taken?

Use the following to answer questions Naui Industries produces flowered shirts which normally sell for $24 each. The total cost to manufacture each shirt is $17, which consists of $11 of variable costs and $6 of fixed costs. A hotel chain has approached Naui with a special order for 2,000 shirts at $15 each. -Assuming Naui presently sells all the shirts it produces,and therefore would have to cancel some of its current orders to fill the special order,Naui should:

In making a decision regarding whether or not to sell a tract of land,the purchase price of the land is a(n):

Expenditures associated with items already purchased,that are irrelevant to future decisions are called:

Short-term decision making differs from long-term decision making because:

The Manhattan Company sells its one and only product for $89.00 per unit.Variable costs per unit amount to $63.50,and total fixed costs are $3,697,500.If Manhattan increases its selling price to $95 how will this affect the breakeven point in units?

Salaries of product-line managers are an example of a/an

Short-term operating decisions:

Kampalot,Inc.manufactures pop-up campers.One of the component parts,RV3,is produced in-house by Kampalot.A supplier has approached the company with an offer to supply the RV3 part at a price of $45 per unit.Kampalot's current costs to manufacture the 20,000 RV3 parts it needs each year are: Assuming there is no alternative use for its current production facilities,determine whether Kampalot should purchase the part from the supplier or continue making the part.Alternatively,if the facilities Kampalot uses to produce part RV3 could be rented for $75,000 per year,should the company continue to produce the part or purchase it instead?

True Fruit,Inc.sells frozen raspberry fruit bars for $2.50 each.The variable cost per bar is $1.35.Total fixed costs are $25,645.The breakeven point in sales dollars is:

Which of the following generates the contribution margin?

Curio Enterprises currently manufactures two products,X and Y,for which the following data have been gathered: *NOTE: All common costs are fixed costs,and they represent the total fixed costs for the company. Curio is considering adding a new product,Product Z.It is expected that Product Z would sell for $50 per unit,have variable costs of $33 per unit,and that the addition of Product Z would result in one-third of the company's common costs being allocated to each product line.It is expected that 10,000 units of product Z would be produced and sold during the period Required: What is the total incremental income in the decision whether or not to manufacture Product Z? Explain why Curio should or should not manufacture Product Z.

All of the following are steps in incremental analysis except: