Julian Company is a price-taker and uses target pricing.Refer to the following information: \[\begin{array} { | l | r | l | } \hline \text { Production volume } & 601,000 & \text { units per year } \\ \hline \text { Market price } & \$ 32 & \text { per unit } \\ \hline \text { Desired operating income } & 16 \% & \text { of total assets } \\ \hline \text { Total assets } & \$ 13,700,000 & \\ \hline \text { Variable cost per unit } & \$ 20 & \text { per unit } \\ \hline \text { Fixed cost per year } & \$ 5,600,000 & \text { per year } \\ \hline \end{array}\] With the current cost structure,Julian cannot achieve its profit goals.It will have to reduce either the fixed costs or the variable costs.Assuming that fixed costs cannot be reduced,what are the target variable costs per unit per year? Assume all units produced are sold.(Round your answer to the nearest cent.)

A) $5.12 B) $12.00 C) $19.03 D) $20.00 A) $5.12 B) $12.00 C) $19.03 D) $20.00

Revolve Company is a price-taker and uses a target-pricing approach.Refer to the following information: \[\begin{array} { | l | r|l| } \hline \text { Production volume } & 602,000 &\text { units per year } \\ \hline \text { Market price } & \$ 30 &\text { per unit } \\ \hline \text { Desired operating income } & 16 \%& \text { of total assets } \\ \hline \text { Total assets } & \$ 13,700,000 \\ \hline \end{array}\] What is the target full product cost in total for the year? Assume all units produced are sold.

A) $96,320 B) $15,868,000 C) $13,700,000 D) $2,192,000 A) $96,320 B) $15,868,000 C) $13,700,000 D) $2,192,000

Dell Productions is a price-taker.The company produces large spools of electrical wire in a highly competitive market; thus,it uses target pricing.The current market price is $800 per unit.The company has $3,100,000 in average assets,and the desired profit is a return of 9% on assets.Assume all products produced are sold.The company provides the following information: \[\begin{array} { | l | r | l | } \hline \text { Sales volume } & 100,000 &\text { units per year } \\ \hline \text { Variable costs } & \$ 750 & \text { per unit } \\ \hline \text { Fixed costs } & \$ 12,000,000 & \text { per year } \\ \hline \end{array}\] Currently the cost structure is such that the company cannot achieve its profit objective and must cut costs.If fixed costs cannot be reduced,how much reduction in variable cost per unit will be needed to achieve the desired target? (Round your answer to the nearest cent.)

A) reduction in variable cost per unit by $750.00 B) reduction in variable cost per unit by $50.00 C) reduction in variable cost per unit by $70.00 D) reduction in variable cost per unit by $72.79 A) reduction in variable cost per unit by $750.00 B) reduction in variable cost per unit by $50.00 C) reduction in variable cost per unit by $70.00 D) reduction in variable cost per unit by $72.79

Exam 25: Short-Term Business Decisions

Meson Productions is a price-taker.Meson produces large spools of electrical wire in a highly competitive market; thus,the company uses target pricing.The current market price of the electric wire is $760 per unit.The company has $3,200,000 in average assets,and the desired profit is a return of 5% on assets.Assume all products produced are sold.The company provides the following information: Sales volume 110,000 units per year Variable costs \ 670 per unit Fixed costs \ 13,000,000 per year If variable costs cannot be reduced,how much reduction in fixed costs will be needed to achieve the profit target?

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Question 1

Correct Answer:

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A

A company sells two products with information as follows: Sales price per unit \ 12.00 \ 28.00 Variable cost per unit \ 10.00 \ 12.00 The products are machine made.Four units of product A can be made with one machine hour and two units of product B can be made with one machine hour.The company has a maximum of 3,000 machine hours available per month.The company can sell up to 18,000 units of product A per month,and up to 3,000 units of product B for the month.What is the optimum product mix to maximize company's operating income?

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(Multiple Choice)

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Question 2

Correct Answer:

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B

Top managers of Computer Manufacturing are alarmed by their operating losses.They are considering dropping the desktop product line.The company accountants have prepared the following analysis to help make this decision. Computer Manufarturing Income Statement For the Year Ended December 31, 20XX Total Laptop Desktop Sales Revenue \ 930,000 \ 575,000 \ 355,000 Variable Costs Contribution Margin 423,000 308,000 115,000 Fixed Costs: Manufacturing 375,000 225,000 150,000 Selling and Administrative 62,000 45,000 17,000 Total Fixed Costs Operating Income (Loss) Total fixed manufacturing costs will not change if the company stops selling the desktop product line.The fixed selling and administrative costs,however,will be avoided. Prepare a differential analysis to show whether Computer Manufacturing should drop the desktop product line.Should the desktop product line be dropped? Explain your answer.

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Question 3

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$\begin{array} { l l l } \text { Expected decrease in revenue } && \$ ( 355,000 ) \\\text { Expected decrease in total variable costs } & \$ 240,000 & \\\text { Expected decrease in fixed costs } & \underline{17,000 }& \underline{2 5 7 , 0 0 0} \\\text { Expected decrease in operating income } & & \underline{\$ (198,000 )}\end{array}$ The differential analysis shows that Computer Manufacturing should not drop the desktop product line.Dropping the desktop product line will decrease operating income by $ 98,000.

List three questions managers should consider when deciding whether to drop a product or a business segment.

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Question 4

If a business is considering the option of processing its product further,it ignores the ________.

(Multiple Choice)

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Question 5

Mickey Tire Company makes a special kind of racing tire.Variable costs are $221 per unit,and fixed costs are $30,000 per month.Mickey sells 500 units per month at a sales price of $310.If the quality of the tire is upgraded,the company believes it can increase the sales price to $349.If so,the variable cost will increase to $230 per unit,and the fixed costs will rise by 50%.If Mickey decides to upgrade,how will operating income be affected?

(Multiple Choice)

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Question 6

Costs that do not differ between alternatives are ________.

(Multiple Choice)

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Question 7

Julian Company is a price-taker and uses target pricing.Refer to the following information: Production volume 601,000 units per year Market price \ 32 per unit Desired operating income 16\% of total assets Total assets \ 13,700,000 Variable cost per unit \ 20 per unit Fixed cost per year \ 5,600,000 per year With the current cost structure,Julian cannot achieve its profit goals.It will have to reduce either the fixed costs or the variable costs.Assuming that fixed costs cannot be reduced,what are the target variable costs per unit per year? Assume all units produced are sold.(Round your answer to the nearest cent.)

(Multiple Choice)

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Question 8

Sierra Semiconductors produces 300,000 high-tech computer chips per month.Each chip uses a component that Sierra makes in-house.The variable costs to make the component are $1.30 per unit,and the fixed costs are $1,200,000 per month.The company has been approached by a foreign producer who can supply the component,within acceptable quality standards,for $1.00 each.If the company chooses to outsource,fixed costs can be reduced by 50%.There are no other uses for the facilities currently employed in making the component.What would be the effect on operating income,if the company decides to outsource?

(Multiple Choice)

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Question 9

Revolve Company is a price-taker and uses a target-pricing approach.Refer to the following information: Production volume 602,000 units per year Market price \ 30 per unit Desired operating income 16\% of total assets Total assets \ 13,700,000 What is the target full product cost in total for the year? Assume all units produced are sold.

(Multiple Choice)

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Question 10

A chemical company spent $532,000 to produce150,000 gallons of a chemical that can be sold for $4.80 per gallon.This chemical can be further processed into a weed killer that can be sold for $9.20 per gallon.It will cost $260,000 to process the chemical into the weed killer.Which of the following is true?

(Multiple Choice)

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Question 11

Dell Productions is a price-taker.The company produces large spools of electrical wire in a highly competitive market; thus,it uses target pricing.The current market price is $800 per unit.The company has $3,100,000 in average assets,and the desired profit is a return of 9% on assets.Assume all products produced are sold.The company provides the following information: Sales volume 100,000 units per year Variable costs \ 750 per unit Fixed costs \ 12,000,000 per year Currently the cost structure is such that the company cannot achieve its profit objective and must cut costs.If fixed costs cannot be reduced,how much reduction in variable cost per unit will be needed to achieve the desired target? (Round your answer to the nearest cent.)

(Multiple Choice)

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Question 12

Gnome Company is deciding whether to continue to manufacture a component or to buy the component from a supplier.Which of the following is relevant to this decision?

(Multiple Choice)

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Question 13

Companies that are price-takers have considerable flexibility in setting the prices of their products.

(True/False)

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Question 14

Shasta Company is trying to decide whether to continue to manufacture a particular component or to buy the component from an outside supplier.Which of the following is irrelevant with respect to this decision?

(Multiple Choice)

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Question 15

Differential analysis is a method that ________.

(Multiple Choice)

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Question 16

Value Electronics uses a standard part in the manufacture of different types of radios.The total cost of producing 24,000 parts is $90,000,which includes fixed costs of $30,000 and variable costs of $60,000.The company can buy this part from an external supplier for $5 per unit and avoid 10% of the fixed costs.If Value Electronics decides to outsource the production of the part,how will it impact its operating income?

(Multiple Choice)

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Question 17

Which of the following is a major consideration when analyzing a special pricing decision?

(Multiple Choice)

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Question 18

Differential analysis is a common approach to making short-term business decisions.

(True/False)

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Question 19

In making product mix decisions under constraining factors,which of the following is the key to choosing the product type to be maximized?

(Multiple Choice)

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Question 20

List three questions managers should consider when deciding whether to drop a product or a business segment.

If a business is considering the option of processing its product further,it ignores the ________.

Costs that do not differ between alternatives are ________.

Gnome Company is deciding whether to continue to manufacture a component or to buy the component from a supplier.Which of the following is relevant to this decision?

Companies that are price-takers have considerable flexibility in setting the prices of their products.

Shasta Company is trying to decide whether to continue to manufacture a particular component or to buy the component from an outside supplier.Which of the following is irrelevant with respect to this decision?

Differential analysis is a method that ________.

Which of the following is a major consideration when analyzing a special pricing decision?

Differential analysis is a common approach to making short-term business decisions.

In making product mix decisions under constraining factors,which of the following is the key to choosing the product type to be maximized?

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets

Flexible Budgets and Standard Cost Systems

Cost Allocation and Responsibility Accounting

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