Exam 8: Relevant Costs for Short-Term Decisions

Mountaintop golf course is planning for the coming season. Investors would like to earn a 12% return on the company's $47,000,000 of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be $20,000,000 for the golfing season. About 440,000 golfers are expected each year. Variable costs are about $17 per golfer. 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?

Which of the following is irrelevant when deciding whether to drive or fly home for semester break?

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

All of the following factors affect the amount a customer is willing to pay for a product, except

Lie Around Furniture manufactures two products: Futons and Recliners. The following data are available: The company can manufacture 4 futons per machine hour and 2 recliners per machine hour. The company's production capacity is 5100 machine hours per month. What is the contribution margin per machine hour for futons?

Opportunity costs should be factored into outsourcing decisions.

Fixed costs that do not differ between two alternatives are

In deciding whether to outsource, managers must consider

Companies should always outsource if the cost of purchasing is less than the total cost of producing the unit under absorption costing.

Which of the following is most important in making a short-term special decision?

Buzz Appliances manufactures two products: Food Processors and Espresso Makers. 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 ratio for food processors?

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

Which of the following is relevant when deciding whether to drive or fly home for semester break?

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 6500 units, are as follows: Assuming Cruise Company can purchase 6500 units of the part from Suri Company for $14.00 each, and the facilities currently used to make the part could be rented out to another manufacturer for $25,000 a year, what should Cruise Company do?

The income statement for Germain Appliances is divided by its two product lines, Toasters and Microwaves, as follows: If fixed costs remain unchanged and Germain Appliances discontinues the Microwave line, how will operating income change?

A manager should always reject a special order if

Managers need to consider variable costs, fixed costs, inventoriable product costs and period costs when setting prices.

Buzz 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 1600 machine hours per month. To maximize profits, what product and how many units should the company produce in a month (assuming unlimited demand for both products)?

Outsourcing decisions are best made by comparing the total manufacturing costs, both fixed and variable, allocated to the product versus the total unit cost charged by the outsourcing company.

Which of the following is not a question that managment needs to consider when deciding to process a product further or sell as is?