Exam 4: Measuring Relevant Costs and Revenues for Decision-Making

Reggie Ltd. manufactures a single product with the following unit costs for 1,000 units: Recently, a company approached Reggie Ltd. about buying 100 units for £5,100 each. Currently, the models are sold to dealers for £7,800. Reggie Ltd.'s capacity is sufficient to produce the extra 100 units. No additional selling expenses would be incurred on the special order. If Reggie Ltd. wants to increase its profit by £18,000 on the special order, what is the minimum price it should charge per unit?

Mills SA. manufactures 50,000 components per year. The manufacturing cost per unit of the components is as follows: An outside supplier has offered to sell the component to Mills SA. for £35. Required: a. What is the effect on income if Mills SA. purchases the component from the outside supplier? b. Assume that Mills SA. can avoid £700,000 of the total fixed overhead costs if it purchases the components. Now what is the effect on income if Mills SA. purchases the component from the outside supplier?

Walton Company manufactures a product with the following costs per unit at the expected production level of 84,000 units: The company has the capacity to produce 90,000 units. The product regularly sells for £120. If a wholesaler offered to buy 4,500 units for £100 each, the effect of the special order on income would be a

Bridge Industries manufactures a product with the following costs per unit at the expected production of 78,000 units: The company has the capacity to produce 80,000 units. The product regularly sells for £90. A wholesaler has offered to pay £75 each for 2,000 units. If Bridge's special order is accepted, the effect on operating income would be a

The following information pertains to Ewing Company's three products: Assume that product F is discontinued and the space is used to produce E. Product E's production is increased to 2,200 units per month, but E's selling price of all units of E is reduced to £10.20. Monthly profits will

Miller Company produces speakers for home stereo units. The speakers are sold to retail stores for £30. Manufacturing and other costs are as follows: The variable distribution costs are for transportation to the retail stores. The current production and sales volume is 20,000 per year. Capacity is 25,000 units per year. The speakers are currently unpackaged. Packaging them individually would increase costs by £1.20 per unit. However, the units could then be sold for £33.00. All other information remains the same as the original data. What is the effect on profits if Miller Company packages the speakers?

If there is excess capacity, the minimum acceptable price for a special order must cover

The following information pertains to Dodge Company's three products: Assume that product C is discontinued and the extra space is rented for £300 per month. All other information remains the same as the original data. Annual profits will

Which of the following costs is relevant to a make-or-buy decision?

Bonilla Ltd., which produces one product, had the following income statement for a recent month: There were no beginning or ending inventories of work-in-process or finished goods. Bonilla's manufacturing costs were as follows: Selling and administrative expenses are all fixed. Bonilla has just received a special order from a firm in Canada to purchase 800 units at £20 each. The order will not affect the selling price to regular customers. Required: a. Prepare a differential analysis of the relevant costs and revenues associated with the decision to accept or reject the special order, assuming Bonilla has excess capacity. b. Determine the net advantage or disadvantage (profit increase or decrease) of accepting the order, assuming Bonilla does not have excess capacity.

Relevant costs are

A decision that focuses on whether a specially priced order should be accepted or rejected is a

Which of the following costs is NOT relevant to a special-order decision?

Reggie Ltd. manufactures a single product with the following unit costs for 1,000 units: Recently, a company approached Reggie Ltd. about buying 100 units for £5,100 each. Currently, the models are sold to dealers for £7,800. Reggie Ltd.'s capacity is sufficient to produce the extra 100 units. No additional selling expenses would be incurred on the special order. What is the profit earned by Reggie Ltd. on the original 1,000 units?

If a cost is identical under each alternative under consideration within a given decision context, the cost is considered:

The Dash Company manufactures two products: A and B. Information about the products is as follows: There are 5,000 machine hours available during the quarter. Required: a. Which of the products should Dash Company produce if it can only produce one of the products? b. Assume that Dash Company uses half of the hours available to produce Product A and half of the hours available to produce Product B. What is Dash's total contribution margin? c. Assume that Dash Company produces the product mix that will maximize profit. What is Dash's total contribution margin?

Boone Products had the following unit costs: A one-time customer has offered to buy 1,000 units at a special price of £48 per unit. Assuming that sufficient unused production capacity exists to produce the order and no regular customers will be affected by the order, how much additional profit (loss) will be generated from the special order?

The operations of Smits Ltd. are divided into the Childs Division and the Jackson Division. Projections for the next year are as follows: Operating income for Smits Ltd. as a whole if the Jackson Division were dropped would be

Qualitative factors that should be considered when evaluating a make-or-buy decision are

The operations of Grant Ltd. are divided into the Fix Division and the Roach Division. Projections for the next year are as follows: Required: a. Determine operating income for Grant Ltd. as a whole if the Roach Division is dropped. b. Should the Roach Division be eliminated?