Exam 25: Short-Term Business Decisions

Hilltop Golf Course is planning for the coming golfing season.Investors would like to earn a 10% return on the company's $50,000,000 of assets.The company primarily incurs fixed costs to groom the greens and fairways.Fixed costs are projected to be $30,000,000 for the season.About 600,000 rounds of golf are expected to be played each year.Variable costs are about $16 per round of golf.Hilltop golf course has a favorable reputation in the area and,therefore,has some control over the sales price of a round of golf.Using a cost-plus pricing approach,what sales price should Hilltop charge for a round of golf to achieve the desired profit?

In making product mix decisions,when fixed costs are irrelevant,a company should emphasize the product with the highest contribution margin per unit of the constraint.

Carlos Naturals manufactures bulk quantities of cleaning fluids.The company currently sells 900 containers a month at a sales price of $26 per unit.The addition of a new disinfectant will result in a sales price of $28 per unit for the improved product.It would cost a total of $4,200 per month to make the alteration.Operating income would ________.

Gardner Sail Makers manufactures sails for sailboats.The company has the capacity to produce 36,000 sails per year and is currently producing and selling 30,000 sails per year.The following information relates to current production: Sales price per unit \ 185 Variable costs per unit: Manufacturing \ 62 Selling and administrative \ 20 Total fixed costs: Manufacturing \ 675,000 Selling and administrative \ 250,000 Assume that a special pricing order is accepted for 5,600 sails at a sales price of $140 per unit.This special order requires both variable manufacturing and variable selling and administrative costs,as well as incremental fixed costs of $401,000.What will be the impact on operating income?

Malmo Avionics makes aircraft instrumentation.Its basic navigation radio requires $60 in variable costs and $5,000 per month in fixed costs.Further processing the radio,to enhance its functionality,will require an additional $28 per unit of variable costs,plus an increase in fixed costs of $290 per month.The marketing manager believes that they would be able to increase the sales price of the radio from $290 to $310.Malmo sells 45 radios per month.If Malmo decides to further process the radio,monthly operating income would ________.(Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar.)

Davis Naturals manufactures bulk quantities of cleaning fluids.It currently sells 1,300 containers a month at a sales price of $16 per unit.If a new fragrance is added,$18 per unit could be charged for the improved product.It would cost a total of $1,000 per month to make that alteration.Operating income would ________.

Donnelley Products sells 2,000 kayaks per year at a sales price of $460 per unit.Donnelley sells in a highly competitive market and uses target pricing.The company has $1,000,000 of assets,and the shareholders wish to make a profit of 17% on assets.Variable cost is $200 per unit and cannot be reduced.Assume all products produced are sold.What are the target fixed costs?

Tyler Corporation has provided you with the following budgeted income statement for one of its products: Vales revenue \ 750,000 Variable costs Fontribution margin \ 250,000 Fixed costs Operating income loss ) (30,000) Tyler Corporation believes that 75% of the fixed costs would be avoidable if the product line was dropped.Based on the impact on the company's operating income or loss,Tyler should keep the product line.

Handbags R Us sells designer and everyday priced handbags.Top management is deciding which product line to emphasize.Company accountants have provided the following data: Designer Per Item Everday Per Item Average Sales Price \ 250 \ 95 Average Variable Costs Average Contribution Margin 150 70 Average Fixed Costs (allocated) Average Operating Income \ 120 \ 60 The store has 5,000 square feet of floor space.If the company emphasizes everyday handbags,it can display 1,000 items in the store.If the store emphasizes designer handbags,it can display only 680 items,These numbers are also the average monthly sales in units. Prepare an analysis to show which product the company should emphasize.Explain your answer.(Do not round intermediate answers.)

Murray Products sells 2,100 kayaks per year at a price of $470 per unit.Murray sells in a highly competitive market and uses target pricing.The company has $990,000 of assets and the shareholders wish to make a profit of 16% on assets.Fixed costs are $500,000 per year and cannot be reduced.Assume all products produced are sold.What are the target variable costs?

Which of the following is always irrelevant to short-term operating decisions?

Canada Sailboats Company manufactures 100 luxury yachts per month.A compact media center is included in each yacht.Canada Sailboats manufactures the media center in-house but is considering the possibility of outsourcing this function.At present,the variable cost per unit is $280,and the fixed costs are $42,000 per month.Justin Blake,the CEO,wishes to increase operating income by $2,000.He has an offer from a foreign producer to provide the media centers at a contract cost of $350 per unit.The required saving in fixed cost in order to achieve his objective would be ________.

Custom Furniture manufactures a small table and a large table.The small table sells for $800,has variable costs of $540 per table,and takes 10 direct labor hours to manufacture.The large table sells for $1,620,has variable costs of $1,000,and takes eight direct labor hours to manufacture.Calculate the contribution margin per direct labor hour for the small table.

Saffron Foods sells jars of special spices used in Spanish cooking.The variable cost is $2 per unit.Fixed costs are $9,000,000 per year.It has $40,000,000 of average assets,and the desired profit is a 4% return on assets.Saffron Foods sells 4,000,000 units per year.The company uses cost-plus pricing because it is the only company that produces this kind of product.Using cost-plus pricing methodology,determine the sales price per unit.(Round your answer to the nearest cent.)

Isabelle's Furniture manufactures a small table and a large table.The small table sells for $800,has variable costs of $570 per table,and takes 10 direct labor hours to manufacture.The large table sells for $1,700,has variable costs of $970,and takes eight direct labor hours to manufacture.The company has a maximum of 5,000 direct labor hours per month when operating at full capacity.If there are no constraints on sales of either product,and the company could choose any proportions of product mix that they wanted,what is the optimum product mix to maximize operating income of the company?

A company produces 300 microwave ovens per month,each of which includes one electrical circuit.The company currently manufactures the circuit in-house but is considering outsourcing the circuits at a contract cost of $34 each.Currently,the cost of producing circuits in-house includes variable costs of $28 per circuit and fixed costs of $6,000 per month.The controller says that they could outsource production of the circuit,if it reduces fixed cost more than $1,800 per month.Is this statement true or false?

A company should decide to process its product further if the additional revenue exceeds the additional cost.

A company sells two products with information as follows: Sales price per unit \ 11 \ 26 Variable cost per unit \ 10 \ 10 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.Assume there are no constraints on sales of either product,and the company can choose any product mix they wish.What is the maximum amount of contribution margin that the company could earn in a month?

An opportunity cost is ________.

A customer of Mason Manufacturing has requested a one-time order at a reduced sales price.Before making the special pricing decision,what are three questions that management of Mason Manufacturing must consider?