Exam 10: Relevant Costs and Product Planning Decisions

Quinton Products manufactures digital cameras.Currently,the company manufactures its own carrying case for the cameras at the following unit costs: Direct materials \2 .00 Direct labour \2 .00 Variable overhead \1 .00 Fixed overhead \1 .00 Another manufacturer has offered to supply Quinton with the case at a cost of $6 each.Quinton currently makes 9000 cases annually.If Quinton accepts the offer,what will be the short-term impact on net income?

Zing Inc.produces both soft and firm twin-size mattresses.Selected data related to each product is as follows: Sales price per unit \ 300 \ 400 Direct materials per unit 50 70 Direct labour per unit 40 60 Variable overhead per unit 20 30 Direct labour hours per unit 40 minutes 60 minutes Most of the stuffing process is done by hand.There are a maximum of 2 000 000 direct labour minutes available each year. Required: A. If there is unlimited demand for both products, how many of each type of mattress should be produced in order to maximise profits? B. If the company believes that there is sufficient demand for up to 30000 soft and 20000 firm mattresses each year, how many of each type should be installed in order to maximise profits?

Tilton Food Warehouse Club sells food and other items in bulk to its members.Tilton is very selective in the products it sells because of limited shelf space.It has been asked by a canned vegetables manufacturer to consider adding three of its canned food items.The following information is available regarding each of the possible canned food items: Sales price per unit \ 3.50 \ 4.50 \ 7.00 Cost to purchase 1.25 2.00 3.00 Units per foot of shelf space 3 2 1 Assuming that there is unlimited demand for all items,if Tilton has 15 feet of shelf space available,which of the following statements is true if they wish to maximise profits?

Which of the following would not be a factor in the consideration of whether or not a special order should be accepted?

Compton Products Inc. Compton Products Inc. manufactures humidifiers. The company currently makes all of the electronic components for the humidifier itself. When 10 000 units are manufactured each year, the motor costs per unit are as follows: Direct materials \ 6 Direct labour 8 Variable overhead 7 Fixed overhead 9 McClintock Inc. has offered to sell Compton 10 000 motors for $25 per unit. If Compton accepts the offer, 75% of the fixed overhead currently allocated to the motors could be avoided. -If Compton accepts the offer to purchase 10 000 motors from McClintock,net income will:

Which of the following costs is least likely to be relevant in deciding whether to accept a special order?

If a company is faced with a limited resource,which of the following is not a feasible option for alleviating the constraint?

Paxton Products has three product lines: A,B,and C. $\begin{array}{lr}&\underline{\text { A }} &\underline{\text { B }} &\underline{ \text { C }} &\underline{ \text { Total }}\\ \text { Sales } &\$90000&\$150000&\$200000&\$440000\\ \text { Variable costs } &\underline{50000}&\underline{120000}&\underline{100000}&\underline{270000}\\ \text {Contribution margin } &40000&30000&100000&170000\\ \text { Fixed costs} &\underline{15000}&\underline{40000}&\underline{50000}&\underline{105000}\\ \text { Net income} &\underline{\$25000}&\underline{\$10000}&\underline{\$(50000)}&\underline{\$65000}\\ \text { } &\\\end{array}$ Management is considering dropping product line B.In order for the dropping of product line B to not cause an overall decrease in profits,product line B's avoidable fixed costs should be at least:

Grissom Products installs standard and deluxe storage sheds.Selected data related to each product is as follows: Sales price per unit \ 2000 \ 4000 Direct materials per unit 350 600 Direct labour per unit 250 350 Variable overhead per unit 100 200 Direct labour hours per unit 4 6 Most of the installation process of the sheds is done using direct labour.There are a maximum of 24 000 direct labour hours available each year. Required: A. If there is unlimited demand for both products, how many of each type of shed should be installed in order to maximise profits? B. If the company believes that there is sufficient demand for up to 4000 standard and 2500 deluxe sheds each year, how many of each type should be installed in order to maximise profits?

In a sell 'as is' or process further decision,if the incremental revenue of additional processing is greater than the incremental cost of additional processing,then:

A particular product line is most likely to be dropped when:

In deciding whether to sell a product 'as is' or process it further,which of the following pieces of information would not be relevant to the decision?

Describe the theory of constraints.In doing so,define bottlenecks and throughput.

Vertical integration:

Wright Manufacturing Wright Manufacturing makes picnic tables in three sizes: small, medium, and large. The picnic tables can be sold with or without a finishing stain. The following information is available for each table: Small Medium Large Initial sales price \ 60 \ 100 \ 1/5 Initial cost 20 40 55 Sales price after staining 70 125 210 Cost of staining 11 15 20 Number sold per month 100 300 175 -Which table(s)should be processed further?

A local vendor at the county fair sells snow cones for $3 each.When 250 snow cones are sold,each snow cone is estimated to have $.10 in variable costs and $.15 in fixed costs.A local school group plans on attending the fair next week and wishes to purchase 50 snow cones for $.25 each.The vendor can sell as many as 400 snow cones per day.What is the minimum price the vendor should charge for the snow cones?

Preston Wade Preston Wade, a local craftsman, normally sells his handcrafted wooden birdhouses for $88 each. Preston has the capacity to produce as many as 50 birdhouses a week. In a normal week, Preston makes 20 birdhouses with the following costs per unit: Direct materials \ 5.00 Direct labour \ 20.00 Variable overhead \ 4.00 Fixed overhead \ 2.00 -Refer to the Preston Wade information below. Preston has received a special order from a local plant nursery for 25 birdhouses.The nursery wishes to have the birdhouses engraved with their own logo,therefore,the order would require the rental of a special engraving tool at a cost of $200.Preston requires a minimum $2000 profit on any special order.The minimum price per birdhouse that Preston should charge the nursery is:

Refer to the Kellerman Detailing Service information below. Kellerman Detailing Service Kellerman Detailing Service provides two types of car detailing packages: the standard and the deluxe. Selected data related to each package is as follows: Standard Deluxe Sales price \ 85 \ 200 Direct materials 5 10 Direct labour 15 40 Variable overhead 5 15 Direct labour hours 2 3 Most of the car detailing is done by hand. -For the upcoming year,there is a maximum of 4050 direct labour hours available.Management believes that the demand for both the standard and deluxe detailing is limited to 900 each per year.How many standard and deluxe detailing jobs should be sold in the upcoming year in order to maximise profits?

Berringer Enterprises manufactures 10 product lines.The following information is available for one of these product lines: $\begin{array}{lr}\text { Sales revenue } & \$ 50000 \\\text { Variable costs } &\underline{ 35000} \\\text { Contribution margin } & 15000 \\\text { Fixed costs } &\underline{ 18000} \\\text { Net income } &\underline{ \$(3000)}\end{array}$ The company's controller is considering dropping the line because it is unprofitable.The controller believes that if the line is dropped,overall company profits are guaranteed to increase.However,the managerial accountant says,'That is not necessarily always the case'.Do you agree or disagree with the accountant? Why or why not?

Laurel Inc.has three product lines: A,B,and C. $\begin{array}{lr}&\underline{\text { A }} &\underline{\text { B }} &\underline{ \text { C }} &\underline{ \text { Total }}\\ \text { Sales } &\$20000&\$35000&\$22000&\$77000\\ \text { Variable costs } &\underline{8000}&\underline{10000}&\underline{14000}&\underline{32000}\\ \text {Contribution margin } &12000&25000&8000&45000\\ \text { Fixed costs} &\underline{4000}&\underline{11000}&\underline{9000}&\underline{24000}\\ \text { Net income} &\underline{\$8000}&\underline{\$14000}&\underline{\$(1000)}&\underline{\$21000}\\ \text { } &\\\end{array}$ Management is considering dropping product line C.If it is discontinued,one-half of its fixed costs can be avoided.The discontinuation of product line C would: