Exam 8: Relevant Costs for Short-Term Decisions

Indicate whether each item below is a characteristic of a price-taker or a price-setter.Use PT for price-taker and PS for price-setter. a)Cost-plus pricing b)Product lacks uniqueness c)Less competition d)Target pricing e)Heavy competition

For a product,revenue at market price plus desired operating profit equals target total cost.

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 800 chaise lounge at a price of $250.00 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.The 800 units would not require any variable marketing and administrative expenses.Regular sales will not be affected by the special order.If the company were to accept this special order,how would operating income be affected?

Cuyahoga Valley Bicycles uses a standard part in the manufacture of several of its bikes.The cost of producing 40,000 parts is $138,000,which includes fixed costs of $68,000 and variable costs of $70,000.The company can buy the part from an outside supplier for $3.50 per unit,and avoid 30% of the fixed costs. If Cuyahoga Valley Bicycles makes the part,how much will its operating income be?

Brittany Furniture manufactures two products,pillows and cushions,from a joint process.Pillows are allocated $7,000 of the total joint costs of $25,000.There are 2,500 pillows produced and 2,500 cushions produced each year.Pillows can be sold at the split-off point for $12 per unit,or they can be processed further into a deluxe pillow for additional processing costs of $8,000 and sold for $16 for each deluxe pillow.If the pillows are processed further and made into deluxe pillows,the effect on operating income would be

Patty's Mailbox Company produces a standard mailbox with variable manufacturing costs of $18 per unit.The selling price of the standard mailbox is $25 per unit.The fixed manufacturing overhead cost is $67,000.A normal production run includes 100,000 units.Patty's Mailbox Company has discovered an additional process to change the standard mailbox into a deluxe mailbox.Additional costs are estimated at $4 per unit.The deluxe mailbox would sell for $35.Additional fixed manufacturing overhead cost of $23,000 would be incurred if the deluxe mailbox is produced.There would be no change in the number of units produced. Make an analysis to determine if Patty's Mailbox Company should continue to produce and sell the standard mailbox or change the standard mailbox into a deluxe mailbox.

In deciding whether to outsource,managers must consider

Contribution margin income statement data for the most recent year follow: Assuming the Dog food is discontinued,total fixed costs remain unchanged,and the space formerly used to produce the line is rented for $25,000 per year,how will operating income be affected?

Management accountants gather and analyze relevant information to compare alternatives.

All other things being equal,if the incremental costs of outsourcing a product exceed the incremental costs of making a product,it should be outsourced.

Unavoidable fixed costs are

A sunk cost is described as which of the following?

Ida Enterprises is considering replacing a machine that is presently used in its production process.The following information is available: Which of the information provided in the table is irrelevant to the replacement decision?

The Print Manufacturing Company manufactures Size 1,Size 2,and Size 3 printer ribbons to support the printers it manufactures.The managerial accountant reported the following information: The managerial accountant at Print Manufacturing noted that the Size 3 printer ribbon reports a loss and the managerial accountant needs to determine if the company should drop the Size 3 printer ribbon.What is the increase or decrease in operating income if the operations manager drops the Size 3 printer ribbon and does not replace it? If the managerial accountant recommends that the organization drop the Size 3 printer ribbon and rent out the space the company uses to store the product at $11,000 per year,is there an increase or a decrease in operating income?

Cost-plus pricing is essentially the opposite of target-costing.

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 5,000 units at a sale price of $40 per product? (NOTE: Assume regular sales are not affected by the special order. )

The maximum outsourcing price a company is willing to pay can be found by solving for the company's indifference point.

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 1,200 units at a sale price of $47 per product? The 1,200 units would not require any variable selling and administrative expenses.(NOTE: Assume regular sales are not affected by the special order. )

Brigg's Breakfast Appliances manufactures two products: Waffle Makers and Coffee Makers.The following data are available: The company can manufacture two waffle makers per machine hour and three coffee makers per machine hour.The company's production capacity is 1,200 machine hours per month. What is the contribution margin ratio for waffle makers?

Target total cost is described by which of the following?