Exam 8: Relevant Costs for Short-Term Decisions

Costs that differ between alternatives are irrelevant.

ABC Toys manufactures and sells wooden toys for $15 each.The company has the capacity to produce 25,000 toys in a year,but is currently produces and sells 20,000 toys per year.The company currently incurs the following costs at its current production level of 20,000 toys: A retailer is interested in purchasing the excess capacity of 5,000 toys if it can receive a special price.This special order would not affect ABC Toys' regular sales or its cost structure.ABC Toys' profits would increase from this special order if the special order price per toy is greater than

Mountaintop golf course is planning for the coming season.Investors would like to earn a 12% return on the company's $45 million of assets.The company primarily incurs fixed costs to groom the greens and fairways.Fixed costs are projected to be $20,000,000 for the golfing season.About 400,000 golfers are expected each year.Variable costs are about $15 per golfer.Mountaintop golf course has a favorable reputation in the area and therefore,has some control over the price of a round of golf.Using a cost-plus approach,what price should Mountaintop charge for a round of golf?

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

Expected future data that differs among alternative courses of action are referred to as

The managerial accountant at the Mill Factory informed the factory manager that the costs to manufacture 20,000 units of a part include the following costs: The Mill Factory noted that $70,000 of its fixed costs to produce the product is an avoidable cost.The managerial accountant considers whether the company should make the product or buy the product from the Frame Factory because the managerial accountant at the Frame Factory offered to produce and sell 20,000 units of the same product to the manager at the Mill Factory at $50 per unit.Should the managerial accountant make-or-buy the product at $50 per unit? What is the total cost to make the product? What is the total cost to buy the product? Explain your answer.

All of the following are outsourcing considerations,except

To maximize profits,produce the product with the lowest contribution margin per unit of the constraint.

The income statement for Lovely Locks is divided by its two product lines,Curling Irons and Straighteners,as follows: If Lovely Locks can eliminate fixed costs of $32,000 and increase the sale of Curling Irons by 6,000 units at a selling price of $30 per unit and a contribution margin of $8 per unit,then discontinuing the Straighteners should result in which of the following?

Jim Bean Company has three product lines: D,E,and F.The following information is available: Jim Bean Company is thinking of discontinuing product line F because it is reporting an operating loss.All fixed costs are unavoidable.Assume Jim Bean Company is able to increase the sales revenue of product F to $32,000 with no change in volume of units sold and no change in variable costs or fixed costs.What affect will this have on operating income?

Moon Appliance manufactures a variety of appliances which all use Part B89.Currently,Moon Appliance manufactures Part B89 itself.It has been producing 9,000 units of Part B89 annually.The annual costs of producing Part B89 at the level of 9,000 units include: All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from an outside supplier.Assume Moon Appliance can purchase 9,000 units of the part from the Nadal Parts Company for $20.00 each,and the facilities currently used to make the part could be used to manufacture 7,000 units of another product that would have a $6 per unit contribution margin.If no additional fixed costs would be incurred,what should Moon Appliance do?

A joint production process at Sunny Brooks Dairy results in two products,cherry jelly and cherry jam.The following cost and activity data relate to these two products: Cherry jelly can be sold as-is (at the split-off point)for $2.50 per unit,or it can be processed further into a specialty cherry smoothie and then sold for $5.00 per unit.If cherry jelly is processed further into the specialty cherry smoothie,what would be the overall effect on operating income?

Which of the following best describes "target costing"?

Totally Technology manufactures Cameras and Video Recorders.The company's product line income statement follows: Management is considering discontinuing the Video Recorder product line.Accountants for the company estimate that discontinuing the Video Recorder line will decrease fixed cost of goods sold by $10,000 and fixed marketing and administrative expenses by $4,000. Prepare an analysis supporting your opinion about whether or not the Video Recorder product line should be discontinued.

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

All About Animals has two product lines: Cat food and Dog food.Contribution margin income statement data for the most recent year follow: If $12,000 of fixed costs will be eliminated by discontinuing the Dog food line,how will operating income be affected?

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.The Green Pastures course has a favorable reputation in the area and therefore,has some control over the price of a round of golf. Based on these numbers,what is Green Pasture's target revenue?

The income statement for Lovely Locks is divided by its two product lines,Curling Irons and Straighteners,as follows: If fixed costs remain unchanged and Lovely Locks discontinues the Straightener line,how will operating income change?

Which of the following is irrelevant when making a decision?

Comfort Cloud manufactures seats for airplanes.The company has the capacity to produce 100,000 seats per year,but is currently produces and sells 75,000 seats per year.The following information relates to current production of seats: If a special sales order is accepted for 3,200 seats at a price of $350 per unit,and fixed costs increase by $12,000,how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order. )