Exam 12: Relevant Costs for Decision Making

If Austin chooses to produce 4,000 afghans each month,what will be the change in the monthly net operating income as compared to selling 4,000 spindles of yarn?

A study has been conducted to determine if Product A should be dropped.Total sales of the product are $200,000 per year;total variable expenses are $140,000 per year.Total fixed expenses charged to the product are $90,000 per year.The company estimates that $40,000 of these fixed expenses will continue even if the product is dropped.These data indicate that if Product A is dropped,the company's overall operating income per year would change by how much?

Suppose there is not enough idle capacity to produce all of the units for the overseas customer,and accepting the special order would require cutting back on production of 700 units for regular customers.The minimum acceptable price per unit for the special order is closest to which of the following?

(Appendix 12A)The markup percentage that would be needed on the new product is closest to which of the following?

How much of the unit product cost of $59.90 is relevant in the decision of whether to make or buy the part?

Future costs that do NOT differ among the alternatives are NOT relevant in a decision.

Assume that discontinuing Product J would result in a $100,000 increase in the contribution margin of other product lines.How many units of Product J would have to be sold next year for the company to be as well off as if it just dropped Product J and enjoyed the increase in contribution margin from other products?

What would the annual cost of additional supervision have to be in order for Hadley to be economically indifferent to making or buying the component? (Assume all other conditions stay the same. )

An avoidable cost is a cost that can be eliminated (in whole or in part)by choosing one alternative over another.

A sunk cost is a cost that has already been incurred and cannot be avoided regardless of what action is chosen.

Assume that if the components were to be purchased from the outside supplier,$35,100 of annual fixed manufacturing overhead would be avoided,and the facilities now being used to make the component would be rented to another company for $64,800 per year.If Rodgers chooses to buy the component from the outside supplier under these circumstances,what would be the impact on annual operating income due to accepting the offer?

If Varone can expect to sell 32,000 Homs next year through regular channels and the special order is accepted at 15% off the regular selling price,what would be the effect on operating income next year due to accepting this order?

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

(Appendix 12A)The markup on absorption cost is closest to which of the following?

What is the net monetary advantage (disadvantage)of processing Product X beyond the split-off point?

All other things equal,it is profitable to continue processing a joint product after the split-off point so long as the incremental revenue from further processing exceeds the incremental costs of further processing.

Which of the following is NOT an effective way of dealing with a production constraint (i.e. ,bottleneck)?

(Appendix 12A)Dresser Company uses time and material pricing.The time rate is $30 per hour.The material loading charge is 15% for ordering,handling,and storing materials and 25% for the desired profit on these materials.Given these data,what would be the total charge for a job that requires 3 hours of labour time and $80 in materials?

Managers should pay little attention to bottleneck operations because they have limited capacity for producing output.

Assume that discontinuing the manufacture and sale of Tams will have no effect on the sale of other product lines.If the company discontinues the Tam product line,what will be the change in the annual operating income (loss)?