Exam 8: Relevant Costs for Short-Term Decisions

When setting prices, managers need to consider all costs.

Companies often try to gain more control over pricing by attempting to differentiate their products.

In pricing a product, managers should consider which of the following?

All About Animals has two product lines: Cat food and Dog food. Contribution margin income statement data for the most recent year follow: If $13,000 of fixed costs will be eliminated by discontinuing the Dog food line, how will operating income be affected?

All About Animals has two product lines: Cat food and Dog food. Contribution margin income statement data for the most recent year follow: Assuming total fixed costs remain unchanged, how would discontinuing the Dog food line affect operating income?

Molly has the following information to evaluate-her current salary of $61,000 versus total revenues of $66,000 and expenses of $51,000 from starting a new business. How much is the opportunity cost associated with starting the new business?

When making product mix decisions, companies are most profitable when they maximize production of the product with the greatest sales price.

All About Animals has two product lines: Cat food and Dog food. 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 $26,000 per year, how will operating income be affected?

A sunk cost can be described as which of the following?

Big-box retailers such as Lowe's are considered price-takers because

Which of the following is a sunk cost?

Which of the following would be a consideration for "sell as is or process further" decisions?

A product line should NOT be discontinued if the contribution margin lost is

Westfall Watches has two product lines: Luxury watches and Sporty watches. Income statement data for the most recent year follow: Assuming the Sporty line is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the Sporty line is used to increase the production of Luxury watches by 250%, how will operating income be affected?

Lasso Corporation manufactures a variety of appliances which all use Part B89. Currently, Lasso Corporation manufactures Part B89 in its internal manufacturing process. Lasso Corporation produces 9000 units of Part B89 annually. The annual costs to product Part B89 at the level of 9000 units include: All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from an outside supplier. Lasso Corporation has no alternative use for its manufacturing facilities. Nadal Parts Company has offered to sell 9000 units of Part B89 to Lasso Corporation for $20.20 per unit. What should Lasso Corporation do?

All of the following are relevant to the decision to replace equipment except the

Widget Inc. manufactures widgets. The company has the capacity to produce 100,000 widgets per year, but it currently produces and sells 75,000 widgets per year. The following information relates to current production: If a special sales order is accepted for 5800 widgets at a price of $40 per unit, fixed costs remain unchanged, and no variable marketing and administrative costs will be incurred for this order, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)

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 3500 units at a sale price of $41 per product assuming additional fixed manufacturing overhead costs of $5100 is incurred? (NOTE: Assume regular sales are not affected by the special order. Round any intermediary calculations to the nearest cent.)

Companies often consider outsourcing so they can focus on their core competencies.

A "constraint" is best described by which of the following?