Exam 12: Relevant Costs for Decision Making

The book value of old equipment is NOT a relevant cost in an equipment replacement decision.

What is the net advantage or disadvantage to the company from upgrading the calculators?

Consider the following statements: I.A vertically integrated firm is more dependent on its suppliers than a firm that is NOT vertically integrated. II.Many firms feel they can control quality better by making their own parts. III.A vertically integrated firm realizes profits from the parts it is "making" instead of "buying" as well as profits from its regular operations. Which of the above statements represent advantages to a firm that is vertically integrated?

The Lantern Corporation has 1,000 obsolete lanterns that are carried in inventory at a manufacturing cost of $20,000.If the lanterns are re-machined for $5,000,they could be sold for $9,000.Alternatively,the lanterns could be sold for scrap for $1,000.Which alternative is more desirable,and what are the total relevant costs for that alternative?

(Appendix 12A)The target selling price based on the absorption costing approach for this product would be closest to which of the following? Refer To: 12-18

(Appendix 12A)Magner,Inc.uses the absorption costing approach to cost-plus pricing to set prices for its products.Based on budgeted sales of 34,000 units next year,the unit product cost of a particular product is $61.80.The company's selling,general,and administrative expenses for this product are budgeted to be $809,200 in total for the year.The company has invested $400,000 in this product and expects a return on investment of 9%.The target selling price for this product based on the absorption costing approach would be closest to which of the following?

Joint production costs are relevant costs in decisions about what to do with a product from the split-off point onward in the production process.

One of the dangers of allocating common fixed costs to a product line is that such allocations can make the line appear less profitable than it really is.

If the new product is added next year,what will be the increase in operating income resulting from this decision?

How many minutes of grinding machine time would be required to satisfy demand for all four products?

Manor Company plans to discontinue a department that has a contribution margin of $24,000 and $48,000 in fixed costs.Of the fixed costs,$21,000 cannot be avoided.What would be the effect of discontinuing the department on Manor's overall operating income?

(Appendix 12A)Watkins Company uses time and material pricing.The time rate is $25 per hour.The material loading charge is 30% for ordering,handling,and storing parts and 10% for the desired profit on materials.Given these data,what would be the total charge for a job that requires 8 hours of labour time and $150 in parts?

Variable costs are always relevant costs.

(Appendix 12A)The markup over cost under the absorption costing approach would increase if the required rate of return increases,holding everything else constant.

Suppose the company is already operating at capacity when the special order is received from the overseas customer.What would be the opportunity cost of each unit delivered to the overseas customer?

What is the net monetary advantage of processing Product Y beyond the split-off point?

Only the variable costs identified with a product are relevant in a decision concerning whether to eliminate the product or not.

(Appendix 12A)The target selling price for one unit of the new product is closest to which of the following?

Suppose there is ample idle capacity to produce the units required by the overseas customer,and the special discounted price on the special order is $76.40 per unit.By how much would this special order increase (decrease)the company's operating income for the month?

Assume that Tolar decides to upgrade the calculators.At what selling price per unit would the company be as well off as if it just sold the calculators in their present condition?