Exam 8: Relevant Costs for Short-Term Decisions

A constraint is a factor that restricts production or sale of a product.

Roger Rabbit Enterprises is considering whether to discontinue a division that generates a total contribution margin of $66,000 per year. Fixed manufacturing overhead allocated to this division is $50,000, of which 19,000 is unavoidable. If Roger Rabbit Enterprises were to eliminate this division, the effect on the company's operating income would be a (n)

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 $33 per DVD player. The total manufacturing cost per DVD player is $14 and consists of variable costs of $10 per DVD player and fixed overhead costs of $5 per DVD player. (NOTE: Assume excess capacity and no effect on regular sales.) Should Blue Technologies accept or reject the special sales order?

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

Part P40 is a part used in the production of air conditioners at Jackson Corporation. The following costs and data relate to the production of Part P40: Jackson Corporation can purchase the part from an outside supplier for $4.72 per unit. If they purchase from the outside supplier, 50% of the fixed costs would be avoided. If Jackson Corporation makes the part, how much will its operating income be?

Martin 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 5000 units at a sale price of $42 per product? (NOTE: Assume regular sales are not affected by the special order. Round any intermediary calculations to the nearest cent.)

All of the following are considerations for discontinuing a product or product line, except

Paula has the following information to evaluate-her current salary of $59,000 versus total revenues of $170,000 and expenses of $76,000 from starting a new business. How much is the opportunity cost associated with starting the new business?

Outsourcing decisions are sometimes referred to as

Relevant information is future data that do not differ among alternatives.

A drug store decides to discontinue its health and beauty section of products because it has been unprofitable. This strategy could backfire because

Companies with production constraints and irrelevant fixed costs will be most profitable when they maximize production of the product with the highest

Lie Around Furniture manufactures two products: Futons and Recliners. The following data are available: The company can manufacture 3 futons per machine hour and 1 recliners per machine hour. The company's production capacity is 3600 machine hours per month. What is the contribution margin ratio for futons?

Elite Office Furniture received a special order for 1,200 units of its executive chair 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. List the relevant costs (and amount)to Elite Office Furniture for this special order.

Percy Productions has three models: D, E, and F. The following information is available: Percy Productions is thinking of discontinuing model F because it is reporting an operating loss. All fixed expenses are unavoidable. Assuming Percy Productions discontinues model F and does not replace it, what effect will this have on operating income?

In making the decision whether to sell a product as is or process the product further, the expected income from selling the product as is may be defined as which of the following?

Which of the following is relevant when deciding to replace old equipment with new?

If a company decides to outsource and then has freed capacity, the decision on what to do with that freed capacity would be based upon

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?

The managerial accountant at Coffee and Tea Manufacturing manufactures three different types of coffee for consumers to enjoy in the marketplace. The managerial accountant reported the following information about the cases of coffee products Product A, Product B, and Product C: Product A uses 1 machine-hour to produce 1 case of coffee; and, Products B and C use 2 machine hours to produce 1 case of coffee. There are 1,000 available machine hours to produce each product. Calculate the contribution margin per unit, the contribution margin ratio, and the available capacity per machine-hour for each coffee product A, B, and C.