Iver Roller Skates has three product lines-D,E,and F.The following information is available: \[\begin{array} { | l | c | c | c | } \hline & \text { D } & \text { E } & \text { F } \\ \hline \text { Sales revenue } & \$ 80,000 & \$ 50,000 & \$ 30,000 \\ \hline \text { Variable costs } & \$ ( 40,000 ) & ( 15,000 ) & ( 10,000 ) \\ \hline \text { Contribution margin } & \$ 40,000 & \$ 35,000 & \$ 20,000 \\ \hline \text { Fixed costs } & \$ 10,000 & \underline { ( 15,000 ) } & \underline { ( 25,000 ) } \\ \hline \text { Operating income (loss) } & \$ 30,000 & \$ 20,000 & \$ ( 5,000 ) \\ \hline \end{array}\] The company is deciding whether to drop product line F because it has an operating loss.Assuming fixed costs are unavoidable,if Iver drops product line F and rents the space formerly used to produce product F for $17,000 per year,total income will be ________.

A) $10,000 B) $42,000 C) $20,000 D) $25,000 A) $10,000 B) $42,000 C) $20,000 D) $25,000

Smith Industries is considering replacing a machine that is presently used in its production process. Which of the following is irrelevant to the replacement decision? \[\begin{array} { | l | r | r | } \hline & \text { Old Machine } & \begin{array} { c } \text { Replacement } \\ \text { Machine } \end{array} \\ \hline \text { Original cost } & \$ 55,000 & \$ 46,000 \\ \hline \text { Remaining useful life in years } & 5 & 5 \\ \hline \text { Current age in years } & 5 &0 \\ \hline \text { Book value } & \$ 33,000 & \\ \hline \text { Current disposal value in cash } & \$ 9,000 & \\ \hline \text { Future disposal value in cash (in 5 years) } &\$0&\$0 \\ \hline \text { Annual cash operating costs } & \$ 8,000 & \$ 4,000 \\ \hline \end{array}\] Which of the information provided in the table is irrelevant to the replacement decision?

A) the sales price of the new machine B) the original cost of the old machine C) the current disposal value of the old machine D) the annual cash operating costs A) the sales price of the new machine B) the original cost of the old machine C) the current disposal value of the old machine D) the annual cash operating costs

A company has two different products that are sold in different markets.Financial data are as follows: \[\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { Product B } & \text { Total } \\ \hline \text { Revenue } & \$ 17,000 & \$ 9,500 & \$ 26,500 \\ \hline \text { Variable cost } & ( 8,000 ) & ( 9,800 ) & ( 17,800 ) \\ \hline \text { Fixed cost (allocated) } & \$ 3,000 ) & \underline { ( 2,200 ) } & \underline { ( 5,200 ) } \\ \hline \text { Operating income (loss) } & \$ 6,000 & \$ ( 2,500 ) & \$ 3,500 \\ \hline \end{array}\] Assume that fixed costs of $1,000 could be eliminated if Product B was dropped.Assume furthermore that dropping one product would not impact sales of the other.If Product B is dropped,what would be the impact on total operating income of the company?

A) increases by $1,000 B) increases by $1,300 C) increases by $300 D) increases by $2,200 A) increases by $1,000 B) increases by $1,300 C) increases by $300 D) increases by $2,200

Priestly Automobiles Company fabricates automobiles.Each vehicle includes one wiring harness,which is currently made in-house.Details of the harness fabrication are as follows: \[\begin{array} { | l | r | l | } \hline \text { Volume } & 800 & \text { units per month } \\ \hline \text { Variable cost per unit } & \$ 8 & \text { per unit } \\ \hline \text { Fixed costs } & \$ 14,000 & \text { per month } \\ \hline \end{array}\] An Indonesian factory has offered to supply Priestly with ready-made units for a price of $13 per wiring harness.Assume that Priestly's fixed costs are unavoidable,but that Priestly could use the vacated production facilities to earn an additional $9,500 of profit per month.If Priestly decides to outsource,monthly operating income will ________.

A) increase by $5,500 B) decrease by $14,000 C) increase by $9,500 D) decrease by $26,300 A) increase by $5,500 B) decrease by $14,000 C) increase by $9,500 D) decrease by $26,300

Sherman Hats,Inc.has two product lines-batting helmets and football helmets.The income statement data for the most recent year is as follows: \[\begin{array} { | l | r | r | r | } \hline & { \text { Total } } & \text { Batting Helmets } & \text { Football Helmets } \\ \hline \text { Sales revenue } & \$ 1,050,000 & \$ 700,000 & \$ 350,000 \\ \hline \text { Variable costs } & \underline { ( 500,000) } & ( 200,000 ) & ( 300,000 ) \\ \hline \text { Contribution margin } & \$ 550,000 & \$ 500,000 & \$ 50,000 \\ \hline \text { Fixed costs } & ( 182,000 )&( 90,000 ) & ( 92,000 ) \\ \hline \text { Operating income (loss) } & \$ 368,000 & \$ 410,000 & \$ ( 42,000 ) \\ \hline \end{array}\] Assuming the football helmets line is dropped,total fixed costs remain unchanged,and the space formerly used to produce the line is rented for $120,000 per year,how will operating income be affected?

A) Operating income will increase by $70,000. B) Operating income will increase by $50,000. C) Operating income will decrease by $50,000. D) Operating income will decrease by $70,000. A) Operating income will increase by $70,000. B) Operating income will increase by $50,000. C) Operating income will decrease by $50,000. D) Operating income will decrease by $70,000.

Acton Company is a price-taker and uses target pricing.Refer to the following information: \[\begin{array} { | l | r | l | } \hline \text { Production volume } & 602,000 & \text { units per year } \\ \hline \text { Market price } & \$ 30 & \text { per unit } \\ \hline \text { Desired operating income } & 15 \% & \text { of total assets } \\ \hline \text { Total assets } & \$ 13,800,000 & \\ \hline \text { Variable cost per unit } & \$ 18 & \text { per unit } \\ \hline \text { Fixed cost per year } & \$ 5,500,000 & \text { per year } \\ \hline \end{array}\] With the current cost structure,Acton cannot achieve its profit goals.It will have to reduce either the fixed costs or the variable costs.Assuming that variable costs cannot be reduced,what are the target fixed costs per year? Assume all units produced are sold.

A) $5,154,000 B) $5,500,000 C) $12,560,000 D) $10,836,000 A) $5,154,000 B) $5,500,000 C) $12,560,000 D) $10,836,000

Brio Motors Company produces a part that is used in the manufacture of one of its products.The unit manufacturing costs of this part,assuming a production level of 6,000 units,are as follows: $\begin{array}{ll} \text { Direct materials } & \$ 5 \\ \text { Direct labor (variable cost) } & 6 \\ \text { Variable manufacturing overhead } & 3 \\ \text { Fixed manufacturing overhead } & \underline{4} \\ \text { Total cost } & \underline{ \$ 18} \end{array}$ Finn Motors Company has offered to sell 6,000 units of the same part to Brio for $17.50 per unit.Assuming the company has no other use for its facilities and that the fixed manufacturing costs are unavoidable,what should Brio do?

The answer of Brio Motors Company produces a part that...

High Seas Sail Makers manufactures sails for sailboats.The company has the capacity to produce 37,000 sails per year and is currently producing and selling 25,000 sails per year.The following information relates to current production: \[\begin{array} { | l | r | } \hline \text { Sales price per unit } & \$ 185 \\ \hline \text { Variable costs per unit: } & \\ \hline \text { Manufacturing } & \$ 60 \\ \hline \text { Selling and administrative } & \$ 20 \\ \hline \text { Total fixed costs: } & \\ \hline \text { Manufacturing } & \$ 700,000 \\ \hline \text { Selling and administrative } & \$ 300,000 \\ \hline \end{array}\] If a special pricing order is accepted for 5,600 sails at a sales price of $160 per unit,fixed costs remain unchanged,and there are no variable selling and administrative costs for this order,what is the change in operating income?

A) Operating income decreases by $448,000. B) Operating income decreases by $560,000. C) Operating income increases by $448,000. D) Operating income increases by $560,000. A) Operating income decreases by $448,000. B) Operating income decreases by $560,000. C) Operating income increases by $448,000. D) Operating income increases by $560,000.

Bridge Company makes special equipment used in cell towers.Each unit sells for $420.Bridge uses just-in-time inventory procedures; it produces and sells 12,500 units per year.It has provided the following income statement data: $\begin{array}{c}\begin{array}{|l|r|} \hline \text { Traditional Format }\\ \hline \text { Sales revenue } & \$ 5,250,000 \\ \hline \text { Cost of goods sold } & 3,100,000 \\ \hline \text { Gross profit } & 2,150,000 \\ \hline \text { Selling \& admin, expenses } & \underline{670,000} \\ \hline & \\ \hline & \\ \hline &\\ \hline &\\ \hline \text { Operating income } & \$ 1,480,000 \\ \hline \end{array} \begin{array}{l|r|} \hline \text { Contribution Margin Format}\\ \hline \text { Sales revenue } & \$ 5,250,000 \\ \hline \text { Variable costs: } &\\ \hline \text { Manufacturing } & 1,200,000 \\ \hline \text { Selling \& admin, } & \underline{400,000}\\ \hline \text { Contribution margin } & 3,650,000 \\ \hline \text { Fixed costs: } & \\ \hline \text { Manufacturing } & 1,900,000\\ \hline \text { Selling \& admin. } & 270,000\\ \hline\text { Operating income }& \$ 1,480,000\\ \hline \end{array}\end{array}$ A foreign company has offered to buy 110 units for a reduced sales price of $250 per unit.The marketing manager says the sale will have no negative impact the company's regular sales.The sales manager says that this sale will not require any additional selling and administrative costs,as it is a one-time deal.The production manager reports that there is plenty of excess capacity to accommodate the deal without requiring any additional fixed costs.If Bridge accepts the deal,how will this impact operating income? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar.)

A) Operating income will increase by $16,940. B) Operating income will decrease by $16,940. C) Operating income will increase by $27,500. D) Operating income will decrease by $27,500. A) Operating income will increase by $16,940. B) Operating income will decrease by $16,940. C) Operating income will increase by $27,500. D) Operating income will decrease by $27,500.

What is the decision rule for outsourcing? \[\begin{array} { | l | l | } \hline \text { Decision } & \text { Decision Rule } \\ \hline \text { Outsource } & \\ \hline \text { Do Not Outsource } & \\ \hline \end{array}\]

\[\begin{array} { | l | l | } \hline \t

Sparks Stationery Company is a price-taker and uses target pricing.The company has just done an analysis of its revenues,costs,and desired profits and has calculated its target full product cost.Assume all products produced are sold.Refer to the following information: \[\begin{array} { | l | r | l | } \hline \text { Target full product cost } & \$ 510,000 & \text { per year } \\ \hline \text { Actual fixed cost } & \$ 280,000 & \text { per year } \\ \hline \text { Actual variable cost } & \$ 2 & \text { per unit } \\ \hline \text { Production volume } & 150,000 & \text { units per year } \\ \hline \end{array}\] Actual costs are currently higher than target full product cost.Assuming that fixed costs cannot be reduced,what is the target variable cost per unit? (Round your answer to the nearest cent.)

A) $3.40 B) $1.53 C) $1.87 D) $2.00 A) $3.40 B) $1.53 C) $1.87 D) $2.00

Exam 25: Short-Term Business Decisions

Sand Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp.The following per unit data are available: Bedford Lamp Lowell Lamp Sales price \ 30 \ 50 Variable costs \ 20 \ 25 Machine hours required for one lamp 1 5 Total fixed costs are $42,000,and the machine hour capacity is 34,000 hours per year.The Lowell Lamp has the highest contribution margin per unit and also has the highest contribution margin per machine hour,so the company should focus sales on the Lowell Lamp.

(True/False)

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Question 141

Special pricing orders increase operating income if the special price exceeds the differential costs of filling the special order.

(True/False)

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Question 142

Iver Roller Skates has three product lines-D,E,and F.The following information is available: D E F Sales revenue \ 80,000 \ 50,000 \ 30,000 Variable costs \ (40,000) (15,000) (10,000) Contribution margin \ 40,000 \ 35,000 \ 20,000 Fixed costs \ 10,000 Operating income (loss) \ 30,000 \ 20,000 \ (5,000) The company is deciding whether to drop product line F because it has an operating loss.Assuming fixed costs are unavoidable,if Iver drops product line F and rents the space formerly used to produce product F for $17,000 per year,total income will be ________.

(Multiple Choice)

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Question 143

Smith Industries is considering replacing a machine that is presently used in its production process. Which of the following is irrelevant to the replacement decision? Old Machine Replacement Machine Original cost \ 55,000 \ 46,000 Remaining useful life in years 5 5 Current age in years 5 0 Book value \ 33,000 Current disposal value in cash \ 9,000 Future disposal value in cash (in 5 years) \0 \0 Annual cash operating costs \ 8,000 \ 4,000 Which of the information provided in the table is irrelevant to the replacement decision?

(Multiple Choice)

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(75)

Question 144

Odin Avionics makes aircraft instrumentation.Its basic navigation radio requires $60 in variable costs and $4,000 per month in fixed costs.Odin sells 10 radios per month.If the company further processes the radio,to enhance its functionality,it will require an additional $28 per unit of variable costs,plus an increase in fixed costs of $280 per month.The current sales price of the radio is $300.The marketing manager is sure that Odin can charge a higher sales price for the improved version.At what sales price level would the new,improved radio begin to improve operating earnings? (Round to the nearest whole dollar.)

(Multiple Choice)

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Question 145

A company has two different products that are sold in different markets.Financial data are as follows: Product A Product B Total Revenue \ 17,000 \ 9,500 \ 26,500 Variable cost (8,000) (9,800) (17,800) Fixed cost (allocated) \ 3,000) Operating income (loss) \ 6,000 \ (2,500) \ 3,500 Assume that fixed costs of $1,000 could be eliminated if Product B was dropped.Assume furthermore that dropping one product would not impact sales of the other.If Product B is dropped,what would be the impact on total operating income of the company?

(Multiple Choice)

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Question 146

Priestly Automobiles Company fabricates automobiles.Each vehicle includes one wiring harness,which is currently made in-house.Details of the harness fabrication are as follows: Volume 800 units per month Variable cost per unit \ 8 per unit Fixed costs \ 14,000 per month An Indonesian factory has offered to supply Priestly with ready-made units for a price of $13 per wiring harness.Assume that Priestly's fixed costs are unavoidable,but that Priestly could use the vacated production facilities to earn an additional $9,500 of profit per month.If Priestly decides to outsource,monthly operating income will ________.

(Multiple Choice)

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Question 147

Felix Time Company manufactures and sells watches for $44 each.Times Products Company has offered Felix Time $30 per watch for a one-time order of 6,000 watches.The total manufacturing cost per watch is $30 per unit and consists of variable costs of $21 per watch and fixed overhead costs of $9 per watch.Assume that Felix Time has excess capacity and that the special pricing order would not adversely affect regular sales.What is the change in operating income that would result from accepting the special sales order?

(Multiple Choice)

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Question 148

Sherman Hats,Inc.has two product lines-batting helmets and football helmets.The income statement data for the most recent year is as follows: Total Batting Helmets Football Helmets Sales revenue \ 1,050,000 \ 700,000 \ 350,000 Variable costs (200,000) (300,000) Contribution margin \ 550,000 \ 500,000 \ 50,000 Fixed costs (182,000) (90,000) (92,000) Operating income (loss) \ 368,000 \ 410,000 \ (42,000) Assuming the football helmets line is dropped,total fixed costs remain unchanged,and the space formerly used to produce the line is rented for $120,000 per year,how will operating income be affected?

(Multiple Choice)

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Question 149

Acton Company is a price-taker and uses target pricing.Refer to the following information: Production volume 602,000 units per year Market price \ 30 per unit Desired operating income 15\% of total assets Total assets \ 13,800,000 Variable cost per unit \ 18 per unit Fixed cost per year \ 5,500,000 per year With the current cost structure,Acton cannot achieve its profit goals.It will have to reduce either the fixed costs or the variable costs.Assuming that variable costs cannot be reduced,what are the target fixed costs per year? Assume all units produced are sold.

(Multiple Choice)

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Question 150

Brio Motors Company produces a part that is used in the manufacture of one of its products.The unit manufacturing costs of this part,assuming a production level of 6,000 units,are as follows: Direct materials \ 5 Direct labor (variable cost) 6 Variable manufacturing overhead 3 Fixed manufacturing overhead Total cost Finn Motors Company has offered to sell 6,000 units of the same part to Brio for $17.50 per unit.Assuming the company has no other use for its facilities and that the fixed manufacturing costs are unavoidable,what should Brio do?

(Short Answer)

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Question 151

High Seas Sail Makers manufactures sails for sailboats.The company has the capacity to produce 37,000 sails per year and is currently producing and selling 25,000 sails per year.The following information relates to current production: Sales price per unit \ 185 Variable costs per unit: Manufacturing \ 60 Selling and administrative \ 20 Total fixed costs: Manufacturing \ 700,000 Selling and administrative \ 300,000 If a special pricing order is accepted for 5,600 sails at a sales price of $160 per unit,fixed costs remain unchanged,and there are no variable selling and administrative costs for this order,what is the change in operating income?

(Multiple Choice)

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Question 152

Bridge Company makes special equipment used in cell towers.Each unit sells for $420.Bridge uses just-in-time inventory procedures; it produces and sells 12,500 units per year.It has provided the following income statement data: Traditional Format Sales revenue \ 5,250,000 Cost of goods sold 3,100,000 Gross profit 2,150,000 Selling \& admin, expenses Operating income \ 1,480,000 Contribution Margin Format Sales revenue \ 5,250,000 Variable costs: Manufacturing 1,200,000 Selling \& admin, Contribution margin 3,650,000 Fixed costs: Manufacturing 1,900,000 Selling \& admin. 270,000 Operating income \ 1,480,000 A foreign company has offered to buy 110 units for a reduced sales price of $250 per unit.The marketing manager says the sale will have no negative impact the company's regular sales.The sales manager says that this sale will not require any additional selling and administrative costs,as it is a one-time deal.The production manager reports that there is plenty of excess capacity to accommodate the deal without requiring any additional fixed costs.If Bridge accepts the deal,how will this impact operating income? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar.)

(Multiple Choice)

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Question 153

Melita Sailboats Company manufactures 10 luxury yachts per month.A compact media center is included in each yacht.Melita Sailboats manufactures the media center in-house but is considering the possibility of outsourcing this function.At present,the variable cost per unit is $300,and the fixed costs are $40,000 per month.If it outsources the media centers,fixed costs could be reduced by half,and the vacant facilities could be rented out to earn $3,000 per month of rental income.At what contract cost would outsourcing pay off for Melita?

(Multiple Choice)

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Question 154

What is the decision rule for outsourcing? Decision Decision Rule Outsource Do Not Outsource

(Essay)

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Question 155

Henderson Products is a price-setter that uses the cost-plus pricing approach.The products are specialty components used in industrial equipment.The CEO is certain that the company can produce and sell 500,000 units per year,due to the high demand for the product.Variable costs are $3.25 per unit.Total fixed costs are $860,000 per year.The target operating income for the year is $150,000.What sales price would allow the CEO to achieve the target if the cost-plus pricing method is used? (Round your answer to nearest cent.)Show all computations.

(Essay)

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(72)

Question 156

A company produces 200 microwave ovens per month,each of which includes one electrical circuit.The company currently manufactures the circuits in-house but is considering outsourcing the circuits at a contract cost of $30 each.Currently,the cost of producing circuits in-house includes variable costs of $24 per circuit and fixed costs of $15,000 per month.Assume the company could cut fixed costs in half by outsourcing and that there is no alternative use for the facilities presently being used to make circuits.If the company outsources,operating income will ________.

(Multiple Choice)

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(78)

Question 157

Venlite,Inc.produces and sells cosmetic products.Currently,the company is operating at 70% of its capacity.The sales price of its product is $30 per unit,and it incurs a full cost of $25 to produce each unit.Its yearly fixed manufacturing overhead amounts to $20,000.The company has received a one-time order for supplying 5,000 units at $26 per unit.This order can be executed within the excess production capacity and will not involve any additional costs.To make this decision,the management of Venlite should use ________.

(Multiple Choice)

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(86)

Question 158

Sparks Stationery Company is a price-taker and uses target pricing.The company has just done an analysis of its revenues,costs,and desired profits and has calculated its target full product cost.Assume all products produced are sold.Refer to the following information: Target full product cost \ 510,000 per year Actual fixed cost \ 280,000 per year Actual variable cost \ 2 per unit Production volume 150,000 units per year Actual costs are currently higher than target full product cost.Assuming that fixed costs cannot be reduced,what is the target variable cost per unit? (Round your answer to the nearest cent.)

(Multiple Choice)

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Question 159

Federal Furniture manufactures a small table and a large table.The small table sells for $1,000,has variable costs of $560 per table,and takes 10 direct labor hours to manufacture.The large table sells for $1,600,has variable costs of $960,and takes eight direct labor hours to manufacture.Calculate the contribution margin per direct labor hour for the large table.(Round your answer to the nearest cent.)

(Multiple Choice)

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Question 160

Special pricing orders increase operating income if the special price exceeds the differential costs of filling the special order.

What is the decision rule for outsourcing? Decision Decision Rule Outsource Do Not Outsource

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

Capital Investment Decisions

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