Fastec Automobile Company fabricates automobiles.Each vehicle includes one transfer case,which is currently made in-house.Details of the transfer case fabrication are as follows: \[\begin{array} { | l | r | l | } \hline \text { Volume } & 800 & \text { units per month } \\ \hline \text { Variable cost per unit } & \$ 8 & \text { per unit } \\ \hline \text { Fixed costs } & \$ 15,000 & \text { per month } \\ \hline \end{array}\] A Korean factory has offered to supply Fastec with ready-made units for a price of $14 per transfer case.Assume that Fastec's fixed costs are unavoidable,but that Fastec could use the vacated production facilities to earn an additional $9500 of profit per month.If Fastec decides to outsource,monthly operating income will ________.

A) increase by $4700 B) decrease by $15,000 C) increase by $9500 D) decrease by $27,100 A) increase by $4700 B) decrease by $15,000 C) increase by $9500 D) decrease by $27,100 A

Deng Corporation manufactures two styles of lamps - Bedford Lamp and Lowell Lamp.The following per unit data are available: \[\begin{array} { | l | r | r | } \hline & \text { Bedford Lamp } & \text { Lowell Lamp } \\ \hline \text { Sales price } & \$ 30 & \$ 35 \\ \hline \text { Variable costs } & \$ 18 & \$ 23 \\ \hline \text { Machine hours required for one lamp } & 2 & 4 \\ \hline \end{array}\] Total fixed costs are $50,000.Machine hour capacity is 30,000 hours per year.Assuming that the company can sell as many products as it can make,which product mix would deliver the highest operating income?

A) 7500 Bedford Lamps and 15,000 Lowell Lamps B) 0 Bedford Lamps and 7500 Lowell Lamps C) 15,000 Bedford Lamps and 0 Lowell Lamps D) 15,000 Bedford Lamps and 15,000 Lowell Lamps A) 7500 Bedford Lamps and 15,000 Lowell Lamps B) 0 Bedford Lamps and 7500 Lowell Lamps C) 15,000 Bedford Lamps and 0 Lowell Lamps D) 15,000 Bedford Lamps and 15,000 Lowell Lamps C

Well-Bread Grain 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: \[\begin{array} { | l | l | l | } \hline \text { Target full product cost } & \$ 520,000 & \text { per year } \\ \hline \text { Actual fixed cost } & \$ 281,000 & \text { per year } \\ \hline \text { Actual variable cost } & \$ 2 & \text { per unit } \\ \hline \text { Production volume } & 150,000 & \text { units per year } \\ \hline \end{array}\] 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) $3.47 B) $1.59 C) $1.87 D) $2.00 A) $3.47 B) $1.59 C) $1.87 D) $2.00

Ortiz Company is a price-taker and uses target pricing.Refer to the following information: \[\begin{array} { | l | l | l | } \hline \text { Production volume } & \$ 02,000 & \text { units per year } \\ \hline \text { Market price } & \$ 30 & \text { per unit } \\ \hline \text { Desired operating income } & 17 \% & \text { of total assets } \\ \hline \text { Total assets } & \$ 13,800,000 & \\ \hline \text { Variable cost per unit } & \$ 20 & \text { per unit } \\ \hline \text { Fixed cost per year } & \$ 5,600,000 & \text { per year } \\ \hline \end{array}\] With the current cost structure,Ortiz 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 year? Assume all units produced are sold.

A) $10,114,000 B) $12,040,000 C) $5,600,000 D) $15,714,000 A) $10,114,000 B) $12,040,000 C) $5,600,000 D) $15,714,000

Saltwater Sail Makers manufactures sails for sailboats.The company has the capacity to produce 36,000 sails per year and is currently producing and selling 25,000 sails per year.The following information relates to current production: \[\begin{array} { | l | r | } \hline \text { Sales price per unit } & \$ 175 \\ \hline \text { Variable costs per unit: } & \\ \hline \text { Manufacturing } & \$ 62 \\ \hline \text { Selling and administrative } & \$ 20 \\ \hline \text { Total fixed costs: } & \\ \hline \text { Manufacturing } & \$ 700,000 \\ \hline \text { Selling and administrative } & \$ 250,000 \\ \hline \end{array}\] Assume that a special pricing order is accepted for 5600 sails at a sales price of $150 per unit.This special order requires both variable manufacturing and variable selling and administrative costs,as well as incremental fixed costs of $400,000.What will be the impact on operating income?

A) Operating income decreases by $380,800. B) Operating income decreases by $19,200. C) Operating income increases by $380,800. D) Operating income increases by $19,200. A) Operating income decreases by $380,800. B) Operating income decreases by $19,200. C) Operating income increases by $380,800. D) Operating income increases by $19,200.

Paper Tiger Stationary Company is a price-taker and uses target pricing.Refer to the following information: \[\begin{array} { | l | l | l | } \hline \text { Production volume } & \$ 01,000 & \text { units per year } \\ \hline \text { Market price } & \$ 30 & \text { per unit } \\ \hline \text { Desired operating income } & 16 \% & \text { of total assets } \\ \hline \text { Total assets } & \$ 1,600,000 & \\ \hline \end{array}\] What is the target full product cost per year? Assume all units produced are sold.

A) $18,030,000 B) $17,774,000 C) $25,600,000 D) $10,217,000 A) $18,030,000 B) $17,774,000 C) $25,600,000 D) $10,217,000

Top managers of Advanced Data 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. Advanced Data Manufacturing Income Statement For the Year Ended December $ 31,20 \times \times $ \[\begin{array} { | l | r | r | r | } \hline &{ \text { Total } } & { \text { Laptop } } & { \text { Desktop } } \\ \hline \text { Sales Revenue } & \$ 930,000 & \$ 575,000 & \$ 355,000 \\ \hline \text { Variable Costs } & \underline { 507,000 } & \underline { 267,000 } & \underline { 240,000 } \\ \hline \text { Contribution Margin } & 423,000 & 308,000 & 115,000 \\ \hline \text { Fixed Costs: } & & & \\ \hline \text { Manufacturing } & 375,000 & 225,000 & 150,000 \\ \hline \text { Selling and Administrative } & \underline { 62,000 } & \underline { 45,000 } & \underline { 17,000 } \\ \hline \text { Total Fixed Costs } & \underline { 437,000 } & \underline { 270,000 } & \underline { 167,000 } \\ \hline \text { Operating Income (Loss) } & \underline { \$ ( 14,000 } & \underline { \$ 38,000 } & \$ ( 52,000 \\ \hline & & & \\ \hline \end{array}\] If the company stops selling the desktop product line,the company will be able to avoid 80% of the fixed manufacturing costs and 100% of the fixed selling and administrative costs. Prepare a differential analysis to show whether Advanced Data Manufacturing should drop the desktop product line.Should the desktop product line be dropped? Explain your answer.

* Avoided fixed costs: The differenti

Exam 25: Short-Term Business Decisions

Fastec Automobile Company fabricates automobiles.Each vehicle includes one transfer case,which is currently made in-house.Details of the transfer case fabrication are as follows: Volume 800 units per month Variable cost per unit \ 8 per unit Fixed costs \ 15,000 per month A Korean factory has offered to supply Fastec with ready-made units for a price of $14 per transfer case.Assume that Fastec's fixed costs are unavoidable,but that Fastec could use the vacated production facilities to earn an additional $9500 of profit per month.If Fastec decides to outsource,monthly operating income will ________.

Free

(Multiple Choice)

4.9/5

(88)

Question 1

Correct Answer:

Verified

A

Deng Corporation manufactures two styles of lamps - Bedford Lamp and Lowell Lamp.The following per unit data are available: Bedford Lamp Lowell Lamp Sales price \ 30 \ 35 Variable costs \ 18 \ 23 Machine hours required for one lamp 2 4 Total fixed costs are $50,000.Machine hour capacity is 30,000 hours per year.Assuming that the company can sell as many products as it can make,which product mix would deliver the highest operating income?

Free

(Multiple Choice)

4.8/5

(78)

Question 2

Correct Answer:

Verified

C

If a company wants to be a price-taker,which of the following strategies should be taken?

Free

(Multiple Choice)

4.7/5

(69)

Question 3

Correct Answer:

Verified

A

________ refers to the benefit given up by choosing an alternative course of action.

(Multiple Choice)

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(70)

Question 4

If a business is considering buying a new vehicle,the cost of the insurance premium is relevant to the business decision.

(True/False)

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(90)

Question 5

The cost-plus pricing approach is emphasized by price-setters.

(True/False)

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Question 6

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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(75)

Question 7

A company is planning to replace an old machine with a new one.Which of the following is a sunk cost?

(Multiple Choice)

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(82)

Question 8

Well-Bread Grain 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 \ 520,000 per year Actual fixed cost \ 281,000 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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(76)

Question 9

Celaneo Avionics makes aircraft instrumentation.Its basic navigation radio requires $80 in variable costs and $3000 per month in fixed costs.Celaneo sells 20 radios per month.If the company further processes the radio,to enhance its functionality,it will require an additional $30 per unit of variable costs,plus an increase in fixed costs of $400 per month.The current sales price of the radio is $270.The CEO wishes to improve operating income by $1100 per month by selling the enhanced version of the radio.In order to meet this target,the sales price to be charged for the enhanced product is ________.

(Multiple Choice)

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Question 10

A company sells two products with information as follows: A B Sales price per unit \ 18 \ 26 Variable cost per unit \ 7 \ 16 Products are made by machine.Five units of product A can be made with three machine hours and five units of product B can be made with 0.6 machine hour.If there are no constraints on production or sales of either product,then the company should emphasize sales of product B.

(True/False)

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Question 11

Managerial accountants assist managers in the decision-making process by gathering and analyzing relevant information.

(True/False)

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Question 12

Ortiz Company is a price-taker and uses target pricing.Refer to the following information: Production volume \ 02,000 units per year Market price \ 30 per unit Desired operating income 17\% of total assets Total assets \ 13,800,000 Variable cost per unit \ 20 per unit Fixed cost per year \ 5,600,000 per year With the current cost structure,Ortiz 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 year? Assume all units produced are sold.

(Multiple Choice)

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(79)

Question 13

Saltwater Sail Makers manufactures sails for sailboats.The company has the capacity to produce 36,000 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 \ 175 Variable costs per unit: Manufacturing \ 62 Selling and administrative \ 20 Total fixed costs: Manufacturing \ 700,000 Selling and administrative \ 250,000 Assume that a special pricing order is accepted for 5600 sails at a sales price of $150 per unit.This special order requires both variable manufacturing and variable selling and administrative costs,as well as incremental fixed costs of $400,000.What will be the impact on operating income?

(Multiple Choice)

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(85)

Question 14

Paddle Paradise,Inc.sells 2500 canoes per year at a sales price of $470 per unit.It sells in a highly competitive market and uses target pricing.The company has calculated its target full product cost at $820,000 per year.Fixed costs are $330,000 per year and cannot be reduced.What is the target variable cost per unit assuming units sold are equal to units produced?

(Multiple Choice)

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Question 15

Victory Tire Company makes a special kind of racing tire.Variable costs are $220 per unit,and fixed costs are $10,000 per month.Victory sells 700 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 $350.If so,the variable cost will increase to $230 per unit,and the fixed costs will remain the same.If Victory decides to upgrade,how will it affect operating income?

(Multiple Choice)

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(89)

Question 16

Which of the following is correct when making a decision about outsourcing?

(Multiple Choice)

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(90)

Question 17

Paper Tiger Stationary Company is a price-taker and uses target pricing.Refer to the following information: Production volume \ 01,000 units per year Market price \ 30 per unit Desired operating income 16\% of total assets Total assets \ 1,600,000 What is the target full product cost per year? Assume all units produced are sold.

(Multiple Choice)

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(80)

Question 18

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

(True/False)

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Question 19

Top managers of Advanced Data 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. Advanced Data Manufacturing Income Statement For the Year Ended December $31,20 \times \times$ 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 Total Fixed Costs Operating Income (Loss) \ (52,000 If the company stops selling the desktop product line,the company will be able to avoid 80% of the fixed manufacturing costs and 100% of the fixed selling and administrative costs. Prepare a differential analysis to show whether Advanced Data Manufacturing should drop the desktop product line.Should the desktop product line be dropped? Explain your answer.

(Essay)

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(73)

Question 20

If a company wants to be a price-taker,which of the following strategies should be taken?

________ refers to the benefit given up by choosing an alternative course of action.

If a business is considering buying a new vehicle,the cost of the insurance premium is relevant to the business decision.

The cost-plus pricing approach is emphasized by price-setters.

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

A company is planning to replace an old machine with a new one.Which of the following is a sunk cost?

Managerial accountants assist managers in the decision-making process by gathering and analyzing relevant information.

Which of the following is correct when making a decision about outsourcing?

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

Accounting and the Business Environment

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Merchandise Inventory

Accounting Information Systems

Internal Control and Cash

Receivables

Plant Assets,natural Resources,and Intangibles

Current Liabilities and Payroll

Partnerships

Corporations

Long-Term Liabilities

Investments

The Statement of Cash Flows

Financial Statement Analysis

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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