Exam 8: Relevant Costs for Short-Term Decisions

When deciding whether to discontinue a product, managers should only consider the costs that will be saved.

Indicate whether each item below is a characteristic of a price-taker or a price-setter. Use PT for price-taker and PS for price-setter. a)Cost-plus pricing b)Product lacks uniqueness c)Less competition d)Target pricing e)Heavy competition

Zach has the following information to evaluate-his current salary of $75,000 versus total revenues of $100,000 and expenses of $67,000 from starting a new business. How much is the opportunity cost associated with staying at his current job?

Mama's Favorite Appliances manufactures two products: Food Processors and Espresso Machines. The following data are available: The company can manufacture two food processors per machine hour and three espresso machines per machine hour. The company's production capacity is 1,200 machine hours per month. What is the contribution margin per machine hour for espresso machines?

Big-box retailers such as Lowe's are considered price-takers because

In most circumstances, all fixed costs can be eliminated by outsourcing a product.

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 ratio for waffle makers?

When using a target costing approach, the company starts with revenue at market price, and then subtracts its desired profit, to yield the target total cost.

Managers should consider ________ when making any sort of decision.

Jim Bean Company has three product lines: D, E, and F. The following information is available: D E F Sales revenue $ 80,000 $42,000 $20,000 Variable expenses $ 40,000 $21,000 $12,000 Contribution margin $ 40,000 $21,000 $ 8,000 Fixed expenses $ 12,000 $15,000 $17,000 Operating income (loss)$ 28,000 $46,000 $(9,000) Jim Bean Company is thinking of discontinuing product line F because it is reporting an operating loss. All fixed costs are unavoidable. Assuming Jim Bean Company discontinues line F and is able to double the production and sales of product line E without increasing fixed costs. What affect will this have on operating income?

Fixed costs affect product mix considerations.

Common fixed costs that are allocated between departments are generally

Green Pastures golf course is planning for the coming season. Investors would like to earn a 12% return on the company's $40 million of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be $20 million for the golfing season. About 500,000 golfers are expected each year. Variable costs are about $12 per golfer. Green Pastures golf course is a price-taker and won't be able to charge more than $60 per round because of local competition. What will Green Pasture's expected profit shortfall be if it charges $60/round?

If the cost savings from discontinuing a product exceed the lost revenues from discontinuing the product, it should be retained.

"Total cost of product or service" is best described as which of the following?

Blue Technologies manufactures and sells DVD players. Great Products Company has offered Blue Technologies $22 per DVD player for 10,000 DVD players. Blue Technologies' normal selling price is $30 per DVD player. The total manufacturing cost per DVD player is $12 and consists of variable costs of $14 per DVD player and fixed overhead costs of $4 per DVD player. (NOTE: Assume excess capacity and no effect on regular sales.) How much are the expected increase (decrease)in revenues and expenses from the special sales order?

Define the term constraints and give an example. What product should be made first when resource constraints exist?

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 1,000 units at a sale price of $40 per product? The special order units would not require any variable selling and administrative expenses.

Each month, Burrel Incorporated produces 500 units of a product that has unit variable costs of $17.00. Total fixed costs for the month are $4,375. A special sales order is received for 200 units of the product at a price of $20 per unit. In deciding to accept or reject the special sales order, it is appropriate to consider the

Rose Incorporated manufactures two types of vases, small and large. The following per unit data are available: Small Vase Large Vase Sale price $60 $100 Variable costs $35 $60 Machine hours required for 1 vase 1 2 Total fixed costs are $600,000 and Rose Incorporated can sell a maximum of 25,000 units of each type of vase annually. Machine hour capacity is 50,000 hours per year. A. Determine the contribution margin per unit for each type of vase. B. Determine the contribution margin per machine hour for each type of vase. C. Determine the number of units of each style of vase that Rose Incorporated should produce to maximize operating income. D. What is the dollar amount of the maximum operating income as calculated in C above?