Exam 8: Relevant Costs for Short-Term Decisions

Four Guys Company has in its inventory 5,000 damaged televisions that cost $50,000.The televisions can be sold in their present condition for $32,000,or repaired at a cost of $43,000 and sold for $76,000.What is the opportunity cost of selling the televisions in their present condition?

Managers should consider ________ when making any sort of decision.

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 $18 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. ) Should Blue Technologies accept or reject the special sales order?

Alamo Corporation processes all of its products through a lathe machine.The lathe is only available for 60 hours per week and is the constraint for all of the products.Data regarding Alamo Corporation's three products follows: In what order should Alamo Corporation emphasize its products to maximize its contribution margin? (Rank the products in order from most profitable to least profitable. )

Elite Office Furniture received a special order for 1,200 units of its executive chairs at a selling price of $90 per chair.Elite Office Furniture has enough capacity to accept the order.No additional selling costs will be incurred.Unit costs to make and sell this product are as follows: Direct Materials $45;Direct Labor $19;Variable Manufacturing Overhead $6;Fixed Manufacturing Overhead $12;and Variable Selling Costs $5. What will be Elite Office Furniture's change in operating income if they accept the special order? Should Elite Office Furniture accept the order? Explain why or why not.

Irrelevant costs are costs that do not affect short-term decisions.

Brittany Furniture manufactures two products: Couches and Beds.The following data are available: The company can manufacture two couches per machine hour and one bed per machine hour.The company's production capacity is 900 machine hours per month. What is the contribution margin per machine hour for beds?

Boots Plus has two product lines: Hiking boots and Fashion boots.Income statement data for the most recent year follow: Assuming the Fashion line is discontinued,total fixed costs remain unchanged,and the space formerly used to produce the Fashion line is used to increase the production of Hiking boots by 250%,how will operating income be affected?

Methods for a company to meet target total cost and the profit goals if the current cost of the product is higher than the target cost include which of the following?

Which of the following is a sunk cost?

Sky High Seats 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 2,500 seats at a price of $320 per unit,fixed costs increase by $5,000,and variable marketing and administrative costs for that order are $25 per unit,how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order. )

The factor that restricts production or sale of a product is which of the following?

Buy the part and use facilities to make another product

Sky High Seats manufactures seats for airplanes.The company has the capacity to produce 100,000 seats per year,but 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 4,000 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. )

When making product mix decisions,companies are most profitable when they maximize production of the product with the greatest sales price.

An example of an expansion constraint would be the size of the available labor pool.

Fixed costs that will continue to exist if a product is discontinued are relevant.

When deciding whether to accept a special order,managers need to consider whether they have available excess capacity.

If a product has a negative contribution margin,it should not be discontinued.

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