Exam 8: Relevant Costs for Short-Term Decisions

A "sales mix" is best described by which of the following?

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

Victoria Technologies makes a part used in the manufacture of digital cameras. Management is considering whether to continue manufacturing the part, or to buy the part from an outside source at a cost of $24.00 per part. Victoria Technologies needs 60,000 parts per year. The cost of manufacturing 60,000 parts is computed as follows: If Victoria Technologies buys the part, it would pay $.60 per unit to transport the parts to its manufacturing plant. Purchasing the part from an outside source would enable the company to avoid 50% of fixed manufacturing overhead costs. Victoria Technologies' factory space freed up by purchasing the part from an outside supplier could be used to manufacture another product with a contribution margin of $70,000. Prepare an analysis to show which alternative makes the best use of Victoria Technologies' factory space: 1)Make the part 2)Buy the part and leave facilities idle 3)Buy the part and use facilities to make another product

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 is a price-taker and won't be able to charge more than its competitors who charge $75 per round of golf. What profit will it earn? State your answer in dollars and as a percent of assets. Will investors be happy with the profit level?

When a company is a price-setter, it emphasizes a target costing approach to pricing.

Becky's Bakery produces two products, cake and pie. Becky's Bakery sells each cake for $15.00 and each pie for $10.00. Variable costs for cakes and pies are respectively, $7.00 and $6.00. There are 3,200 direct labor hours per month available for producing one of the two products. Fixed manufacturing overhead cost is allocated at $1,000 per month. Each cake and pie require 2 direct labor hours. Compute the following: A. Contribution margin per unit for each product. B. Contribution margin per direct labor hour for each product. C. The total number of products produced if only that product is produced each month. D. Income for a month if only one product is produced and total production is sold.

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.)

Sunk costs should be considered when deciding whether to sell a product as is or process it further.

Lie Around Furniture manufactures two products: Futons and Recliners. The following data are available: The company can manufacture 3 futons per machine hour and 2 recliner per machine hour. The company's production capacity is 7800 machine hours per month. What is the contribution margin per machine hour for recliners?

Daffodil Incorporated manufactures two types of vases, small and large. The following per unit data are available: A. Determine the contribution margin per unit for each type of vase. B. Determine the contribution margin per machine hour for each type of vase. C. Determine the number of units of each style of vase that Daffodil Incorporated should produce to maximize operating income. D. Compute the dollar amount of the maximum operating income (as calculated in C above).

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.

Harvey Automobiles uses a standard part in the manufacture of several of its trucks. The cost of producing 90,000 parts is $130,000, which includes fixed costs of $70,000 and variable costs of $60,000. The company can buy the part from an outside supplier for $3.50 per unit, and avoid 30% of the fixed costs. 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 $350,000 profit. If Harvey Automobiles makes the part, what will its operating income be?

For some merchandisers, the primary constraint may be cubic feet of display space.

Relevant information is expected future data that will not differ among alternatives.

Which of the following pairs are characteristics of price-takers?

Blue Ridge Bicycles uses a standard part in the manufacture of several of its bikes. The cost of producing 42,000 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. 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 $15,000 profit. If Blue Ridge Bicycles makes the part, what will its operating income be?

The following information relates to current production of outdoor chaise lounges at Backyard Posh: The regular selling price per chaise lounge is $300. The company is analyzing the opportunity to accept a special sales order for 1100 chaise lounges at a price of $215 per unit. Fixed costs would remain unchanged. The company has the capacity to produce 135,000 chaise lounges per year, but is currently producing and selling 12,000 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?

Silvio Enterprises produces three products, with costs and selling prices as follows: Each product requires a certain number of minutes on the drill press. There is only one drill press available so it is the constraint for this product. Model D7 requires 2 minutes of drill press time, Model B3 requires 1 minute of drill press time, and Model F5 requires 7 minutes of drill press time. In what order should Silvio Enterprises emphasize its products to maximize its contribution margin? (Rank the products in order from most profitable to least profitable.)

Fixed costs that exist even after a product is discontinued are called unavoidable fixed costs.

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 6300 units, are as follows: Assume Cruise Company can purchase 6300 units of the part from Suri Company for $14.30 each, and the facilities currently used to make the part could be used to manufacture 6300 units of another product that would have an $9 per unit contribution margin. If no additional fixed costs would be incurred, what should Cruise Company do?