Exam 8: Relevant Costs for Short-Term Decisions

Longview Baskets has in its inventory 2,000 damaged baskets that cost $20,000.The baskets can be sold in their present condition for $12,000,or repaired at a cost of $13,000 and sold for $35,000.What is the opportunity cost of selling the baskets in their present condition?

Mountaintop golf course is planning for the coming season.Investors would like to earn a 12% return on the company's $50 million of assets.The company primarily incurs fixed costs to groom the greens and fairways.Fixed costs are projected to be $25,000,000 for the golfing season.About 400,000 golfers are expected each year.Variable costs are about $8 per golfer.The 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?

Harvey Automobiles uses a standard part in the manufacture of several of its trucks.The cost of producing 40,000 parts is $120,000,which includes fixed costs of $60,000 and variable costs of $60,000.By outsourcing the part,the company can avoid 30% of the fixed costs. If Harvey Automobiles buys the part,what is the most Harvey Automobiles can spend per unit so that operating income equals the operating income from making the part?

Brittany Furniture manufactures two products: Futons and Recliners.The following data are available: The company can manufacture two futons per machine hour and one recliner per machine hour.The company's production capacity is 900 machine hours per month. What is the contribution margin per machine hour for recliners?

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 line is rented for $30,000 per year,how will operating income be affected?

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

Apex Company produces artificial Christmas trees.A local shopping mall recently made a special order offer;the shopping mall would like to purchase 200 extra-large white trees.Apex Company is currently producing and selling 20,000 trees;the company has the excess capacity to handle this special order.The shopping mall has offered to pay $120 for each tree.An accountant at Apex Company provides an estimate of the unit product cost as follows: This special order would require an investment of $10,000 for the molds required for the extra-large trees.These molds would have no other purpose and would have no salvage value.The special order trees would also have an additional variable cost of $5.00 per unit associated with having a white tree.This special order would not have any effect on the company's other sales.If the special order is accepted,the company's operating income would increase (decrease)by

The internal financial statements of Vera Incorporated show that their beaded purses incurred an operating loss in the most recent year.There were 25,000 purses sold in that year.Selected financial information about the purse line follows. If the line of purses were to be discontinued,the company would avoid $16,000 in fixed costs per year. If Vera Incorporated were to discontinue the line of purses,the change in annual operating income would be a(n)

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?

Stooge Enterprises manufactures ceiling fans that normally sell for $90 each.There are 300 defective fans in inventory,which cost $55 each to manufacture.These defective units can be sold as is for $20 each,or they can be processed further for a cost of $40 each and then sold for the normal selling price.Stooge Enterprises would be better off by a

The format of the income statement most useful in decision-making is which of the following?

Brittany Furniture manufactures two products: Futons and Recliners.The following data are available: The company can manufacture two futons per machine hour and one recliner per machine hour.The company's production capacity is 900 machine hours per month. What is the contribution margin per machine hour for futons?

Brittany Furniture manufactures two products: Futons and Recliners.The following data are available: The company can manufacture two futons per machine hour and one recliner per machine hour.The company's production capacity is 900 machine hours per month. What is the contribution margin ratio for futons?

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 couches?

The following information relates to current production of outdoor chaise lounges at Backyard Posh: The regular selling price per chaise lounge is $300.00.The company is analyzing the opportunity to accept a special sales order for 1,200 chaise lounges at a price of $225.00 per unit.Fixed costs would remain unchanged.The company has the capacity to produce 15,000 chaise lounges per year,but is currently producing and selling 10,000 chaise lounges per year.Regular sales will not be affected by the special order.What is the impact on operating income if the company accepts the special order?

When the extra revenue from processing further is less than the extra cost of processing further,the best decision would be to

An opportunity cost is a past cost.

Opportunity costs should be factored into outsourcing decisions.

Samson Incorporated provided the following information regarding its only product: Assuming there is excess capacity,what would be the effect on operating income of accepting a special order for 3,000 units at a sale price of $45 per product assuming additional fixed manufacturing overhead costs of $5,000 is incurred? (NOTE: Assume regular sales are not affected by the special order. )

Molly has the following information to evaluate-her current salary of $57,000 versus total revenues of $62,000 and expenses of $47,000 from starting a new business.How much is the opportunity cost associated with starting the new business?