Exam 8: Relevant Costs for Short-Term Decisions

All of the following would be considered in evaluating product or sales mix allocations, except

Boots Plus has two product lines: Hiking boots and Fashion boots. Income statement data for the most recent year follow: Assuming fixed costs remain unchanged, how would discontinuing the Fashion line affect operating income?

Opportunity costs should be factored into outsourcing decisions.

Cost-plus pricing is essentially the opposite of target-costing.

In a special sales order decision, the special price must exceed the variable cost of filling the order. In other words, the special order must have ________.

A "relevant cost" is best described by which of the following?

Revved Up Toys manufactures a computer chip used in the production of remote control cars. When 6,000 cars are produced, the costs per part are: Sam's Associates has offered to sell Revved Up Toys 6,000 parts for $5.75 each. If Sarah accepts the offer, $1.00 of the fixed manufacturing overhead costs can be eliminated. a. What is the relevant per unit cost to manufacture the part? b. Which alternative is best for Revved Up Toys and by how much?

When making outsourcing (make-or-buy)decisions, the focus is on how best to use available resources.

Product differentiation allows companies to become more of a price-setter, and less of a price-taker.

Comfort Cloud manufactures seats for airplanes. The company has the capacity to prroduce 100,000 seats per year, but is currently producing and selling 75,000 seats per year. The following information relates to current production: If a special sales order is accepted for 5,500 seats at a price of $325 per unit, fixed costs remain unchanged, and no variable marketing and administrative costs will be incurred for this order, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)

Make or buy decisions are often referred to as outsourcing decisions.

Relevant information is expected future data that will not differ among alternatives.

Pluto Incorporated provided the following information regarding its single product: The regular selling price for the product is $80. The annual quantity of units produced and sold is 40,000 units (the costs above relate to the 40,000 units production level). The company has excess capacity and regular sales will not be affected by this special order. There was no beginning inventory. What would be the effect on operating income of accepting a special order for 1,500 units at a sale price of $50 per product assuming additional fixed manufacturing overhead costs of $10,000 are incurred?

Upscale Dishwear manufactures two products, salad plates and platters, from a joint process. Salad plates are allocated $7,500 of the total joint costs of $25,000. There are 3,000 salad plates produced and 3,000 platters produced each year. Salad plates can be sold at the split-off point for $12 per unit, or they can be hand painted for additional processing costs of $8,400 and sold for $16 for each deluxe salad plate. If the salad plates are processed further and made into deluxe plates, the effect on operating income would be:

Samson Incorporated provided the following information regarding its only product: Assuming there is excess capacity, what would be the effect on operating income of accepting a special order for 5,000 units at a sale price of $40 per product? (NOTE: Assume regular sales are not affected by the special order.)

Part P40 is a part used in the production of air conditioners at Jackson Corporation. The following costs and data relate to the production of Part P40: Jackson Corporation can purchase the part from an outside supplier for $4.25 per unit. If they purchase from the outside supplier, 50% of the fixed costs would be avoided. If Jackson Corporation buys the part, what is the most Jackson Corporation can spend per unit so that operating income is equal to $97,000?

Brigg's Breakfast Appliances manufactures two products: Waffle Makers and Coffee Makers. The following data are available: The company can manufacture two waffle makers per machine hour and three coffee makers per machine hour. The company's production capacity is 1,200 machine hours per month. What is the contribution margin per machine hour for coffee makers?

Companies often consider outsourcing so they can focus on their core competencies.

Mountaintop golf course is planning for the coming season. Investors would like to earn a 12% return on the company's $50 million of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be $25,000,000 for the golfing season. About 400,000 golfers are expected each year. Variable costs are about $8 per golfer. The Mountaintop golf course is a price-taker and won't be able to charge more than its competitors who charge $75 per round of golf. What profit will it earn? State your answer in dollars and as a percent of assets. Will investors be happy with the profit level?

Outsourcing decisions are sometimes referred to as