Exam 12: Relevant Costs for Decision Making

Which of the following best describes a plant operating at capacity?

Which lowest selling price per unit could be charged for the new product that would still make it economically desirable to add the new product?

The cost of resources that has no alternative use in a make or buy decision has an opportunity cost of zero.

(Appendix 12A)In target costing,the anticipated competitive market price of a product determines its maximum allowable product cost.

(Appendix 12A)The markup on absorption cost for this product would be closest to which of the following?

Manor Company plans to discontinue a department that has a contribution margin of $25,000 and $50,000 in fixed costs.Of the fixed costs,$21,000 cannot be eliminated.What would be the effect on the operating income of Manor Company of discontinuing this department?

(Appendix 12A)Straus Company,a manufacturer of electronic products,wants to introduce a new calculator.To compete effectively,the calculator could not be priced at more than $40.The company requires a 20% rate of return on investment on all new products.In order to produce and sell 30,000 calculators each year,the company would have to make an investment of $850,000.What would be the target cost per calculator?

(Appendix 12A)If a company sells a product for less than its budgeted unit product cost under absorption costing,then the company will lose money.

A study has been conducted to determine if one of the departments in Parry Company should be discontinued.The contribution margin in the department is $50,000 per year.Fixed expenses charged to the department are $65,000 per year.It is estimated that $40,000 of these fixed expenses could be eliminated if the department is discontinued.These data indicate that if the department were discontinued,the company's overall operating income per year would change by how much?

Assume that there is no other use for the capacity now being used to produce the component,and the total fixed manufacturing overhead of the company would not be affected by this decision.If Rodgers Company were to purchase the components rather than making them internally,what would be the impact on the company's annual operating income?

What maximum amount (rounded to the nearest whole cent)should the company be willing to pay for one additional minute of grinding machine time if the company has made the best use of the existing grinding machine capacity?

(Appendix 12A)Under time and material pricing,what is(are)included in the time component?

(Appendix 12A)The target selling price based on the absorption costing approach is closest to which of the following?

What should a firm faced with a production constraint do to maximize total contribution margin?

Assume that discontinuing the Tam product would result in a $120,000 increase in the contribution margin of other product lines.How many Tams would have to be sold next year for the company to be as well off as if it just dropped the line and enjoyed the increase in contribution margin from other products?

If Varone has an opportunity to sell 37,960 Homs next year through regular channels and the special order is accepted for 15% off the regular selling price,what would be the effect on operating income next year due to accepting this order?

Given the current capacity what is the greatest total contribution margin Brown Company can earn?

What is a joint product?

(Appendix 12A)The time and material approach pricing will result in attaining the company's desired profit only if forecasted billable activity is realized,holding all other things constant.

Gata Co.plans to discontinue a department that has a $48,000 contribution margin and $96,000 of fixed costs.Of these fixed costs,$42,000 cannot be avoided.What would be the effect of discontinuing the department on Gata's overall operating income?