Exam 8: Relevant Costs for Short-Term Decisions

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.Assume that factory space freed up by purchasing the part from an outside source can be used to manufacture another product that can be sold for $2,000 profit.If Jackson Corporation makes the part,what will its operating income be?

Cruise Company produces a part that is used in the manufacture of one of its products.The unit Manufacturing costs of this part,assuming a production level of 6,000 units,are as follows: Suri Company has offered to sell 6,000 units of the same part to Cruise Company for $14 per unit.Assuming the company has no other use for its facilities,what should Cruise Company do?

Fixed costs affect product mix considerations.

Label each item below as relevant or irrelevant in making a decision. a)Cost of roof repair made on rental property last year b)The cost of insurance on a new vehicle when deciding to buy a new vehicle c)Cost of new equipment under evaluation to replace used equipment d)Original cost of old equipment that is being evaluated for replacement e)Cost of previous year's insurance policy on old equipment being evaluated for replacement f)Accumulated depreciation on old equipment being evaluated for replacement

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?

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

When making a pricing decision,it is not necessary to separate costs into fixed and variable.

Hill Fabricators manufactures a variety of parts that the company can use to produce metal stud fixtures.The M2 part is a popular universal part used in the production of several other parts at its manufacturing facility in Ohio.At a recent meeting,the managerial accountant reported that 11% of its fixed overhead cots assigned to the M2 part will not continue if Hill Fabricators decides to outsource the production of the M2 part at $40 per unit to its competitor,Mason Manufacturing.The managerial accountant at Hill Fabricators presented the following data that represents the cost to produce 1,100 units of the M2 part in-house: What are the monthly avoidable costs if Hill Fabricators outsources the production of the M2 part to Mason Manufacturing? What is the change in operating income? What is the per unit cost to produce the M2 part?

A price-setter company emphasizes a cost-plus approach to pricing.

In a sell or process further decision,the company should process further if

The cost-plus price is described by which of the following?

Target total cost is defined as

If a product line has a negative contribution margin,the product is not covering its fixed costs and should be discontinued.