Discourse Stationery Company is a price-taker and uses target pricing.The company has completed an analysis of its revenues,costs,and desired profits and has calculated its target full product cost.Refer to the following information: \[\begin{array} { | l | l | l | } \hline \text { Target full product cost } & \$ 500,000 & \text { per year } \\ \hline \text { Actual fixed cost } & \$ 270,000 & \text { per year } \\ \hline \text { Actual variable cost } & \$ 2 & \text { per unit } \\ \hline \text { Production volume } & 140,000 & \text { units per year } \\ \hline \end{array}\] Actual costs are currently higher than target full product cost.Assume all products produced are sold.Assuming that variable costs are dependent on commodity prices and cannot be reduced,what is the target fixed cost?

A) $230,000 B) $280,000 C) $220,000 D) $500,000 A) $230,000 B) $280,000 C) $220,000 D) $500,000

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

Kerr 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 $3,000,000 in average assets,and the desired profit is a return of 7% on assets.Assume all products produced are sold.The company provides the following information: \[\begin{array} { | l | r | l | } \hline \text { Sales volume } & 100,000& \text { units per year } \\ \hline \text { Variable costs } & \$ 725 & \text { per unit } \\ \hline \text { Fixed costs } & \$ 12,000,000 & \text { per year } \\ \hline \end{array}\] 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 $725.00 B) reduction in variable cost per unit by $75.00 C) reduction in variable cost per unit by $45.00 D) reduction in variable cost per unit by $47.10 A) reduction in variable cost per unit by $725.00 B) reduction in variable cost per unit by $75.00 C) reduction in variable cost per unit by $45.00 D) reduction in variable cost per unit by $47.10

Protector,Inc.has two product lines-batting helmets and football helmets.The income statement data for the most recent year is as follows: \[\begin{array} { | l | r | r | r | } \hline & { \text { Total } } & \text { Batting Helmets } & \text { Football Helmets } \\ \hline \text { Sales revenue } & \$ 840,000 & \$ 500,000 & \$ 340,000 \\ \hline \text { Variable costs } & ( 480,000 & \underline { ( 200,000 ) } & ( 280,000 ) \\ \hline \text { Contribution margin } & \$ 360,000 & \$ 300,000 & \$ 60,000 \\ \hline \text { Fixed costs } & ( 170,000 & ( 80,000 ) & ( 90,000 ) \\ \hline \text { Operating income (loss) } & \$ 190,000 & \$ 220,000 & \$ ( 30,000 ) \\ \hline \end{array}\] Assuming the football helmets line is dropped,total fixed costs remain unchanged,and the space formerly used to produce the line is rented for $100,000 per year,how will operating income be affected?

A) Operating income will increase by $40,000. B) Operating income will increase by $60,000. C) Operating income will decrease by $60,000. D) Operating income will decrease by $40,000. A) Operating income will increase by $40,000. B) Operating income will increase by $60,000. C) Operating income will decrease by $60,000. D) Operating income will decrease by $40,000.

Transformation Motor 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: $\begin{array}{ll} \text { Direct materials } & \$ 5 \\ \text { Direct labor (variable cost) } & 6 \\ \text { Variable manufacturing overhead } & 3 \\ \text { Fixed manufacturing overhead } & \underline{4} \\ \text { Total cost } & \$ 18 \end{array}$ Alba Motors Company has offered to sell 6,000 units of the same part to Transformation 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 Transformation do?

The answer of Transformation Motor Company produces a part that...

Dynamo Company is a price-taker.The company produces generators in a highly competitive market; thus,it uses target pricing.The current market price is $600 per unit.The company has $18,500,000 in average assets,and the desired profit is a return of 8% on assets.Assume all products produced are sold.The company provides the following information: \[\begin{array} { | l | r | l | } \hline \text { Sales volume } & 65,000& \text { units per year } \\ \hline \text { Variable costs } & \$ 500 & \text { per unit } \\ \hline \text { Fixed costs } & \$ 7,500,000 & \text { per year } \\ \hline \end{array}\] Currently the cost structure is such that the company cannot achieve its profit objective and must cut costs.If variable costs cannot be reduced,how much reduction in fixed costs will be needed to achieve the desired target? Show all computations.

\[\begin{array} { l l } \text { Current

Beacon Corporation manufactures two styles of lamps- Bedford Lamp and Lowell Lamp.The following per unit data are available: \[\begin{array} { | l | r | r | } \hline & \text { Bedford Lamp } & \text { Lowell Lamp } \\ \hline \text { Sales price } & \$ 28 & \$ 35 \\ \hline \text { Variable costs } & \$ 15 & \$ 23 \\ \hline \text { Machine hours required for one lamp } & 1 & 4 \\ \hline \end{array}\] Total fixed costs are $31,000,and Beacon can sell a maximum of 10,000 units of each style of lamp annually.Machine hour capacity is 25,000 hours per year.What is the contribution margin per machine hour for the Bedford Lamp? (Round your answer to the nearest cent.)

A) $13.00 per machine hour B) $3.00 per machine hour C) $28.00 per machine hour D) $35.00 per machine hour A) $13.00 per machine hour B) $3.00 per machine hour C) $28.00 per machine hour D) $35.00 per machine hour

Exam 25: Short-Term Business Decisions

Discourse Stationery Company is a price-taker and uses target pricing.The company has completed an analysis of its revenues,costs,and desired profits and has calculated its target full product cost.Refer to the following information: Target full product cost \ 500,000 per year Actual fixed cost \ 270,000 per year Actual variable cost \ 2 per unit Production volume 140,000 units per year Actual costs are currently higher than target full product cost.Assume all products produced are sold.Assuming that variable costs are dependent on commodity prices and cannot be reduced,what is the target fixed cost?

(Multiple Choice)

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Question 81

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

(Essay)

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Question 82

A depreciable asset's original cost is relevant when considering whether to replace the asset.

(True/False)

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Question 83

Starforce Avionics makes aircraft instrumentation.Its basic navigation radio requires $80 in variable costs and $5000 per month in fixed costs.Further processing the radio,to enhance its functionality,will require an additional $28 per unit of variable costs but no change to the fixed costs.The marketing manager believes that the company would be able to increase the sales price from $290 to $310.If Starforce decides to further process the product,operating income would ________.

(Multiple Choice)

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Question 84

Merchandisers are constrained by the size of their stores,and managers must choose which products to display.

(True/False)

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Question 85

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

(True/False)

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Question 86

Seven Seas Boat Company manufactures 100 luxury yachts per month.A security system is included in each yacht.Seven Seas Boat Company manufactures the security system in-house.The company is considering the possibility of outsourcing the production of the security system in order to close down some of its facilities and reduce administrative costs.At present,the variable cost per unit is $325,and fixed costs are $39,000 per month.Assuming the company outsources the production of the security system and the fixed costs could be eliminated entirely,at what contract cost would outsourcing pay off for Seven Seas? (Round to the nearest whole dollar.)

(Multiple Choice)

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Question 87

Kerr 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 $3,000,000 in average assets,and the desired profit is a return of 7% on assets.Assume all products produced are sold.The company provides the following information: Sales volume 100,000 units per year Variable costs \ 725 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 88

Which of the following would not be relevant in an outsourcing decision?

(Multiple Choice)

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Question 89

Protector,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 \ 840,000 \ 500,000 \ 340,000 Variable costs (480,000 (280,000) Contribution margin \ 360,000 \ 300,000 \ 60,000 Fixed costs (170,000 (80,000) (90,000) Operating income (loss) \ 190,000 \ 220,000 \ (30,000) Assuming the football helmets line is dropped,total fixed costs remain unchanged,and the space formerly used to produce the line is rented for $100,000 per year,how will operating income be affected?

(Multiple Choice)

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Question 90

Outrigger Leisure Products sells 2200 kayaks per year at a price of $450 per unit.Outrigger 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.Fixed costs are $450,000 per year and cannot be reduced.Assume all products produced are sold.What are the target variable costs?

(Multiple Choice)

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Question 91

The income statement for Nighty Night,Inc.is divided into two product lines,blankets and pillows,as follows: Blankets Pillows Total Sales revenue \ 700,000 \ 500,000 \ 1,200,000 Variable costs Contribution margin 450,000 70,000 520,000 Fixed costs Operating income (loss) \ 385,000 \ (15,000 \ 370,000 Nighty Night,Inc.should eliminate the pillows product line only,if by doing so,they can eliminate more than $70,000 of fixed costs.

(True/False)

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Question 92

The income statement for Sweet Dreams Company is divided by its two product lines,blankets and pillows,as follows: Blankets Pillows Total Sales revenue \ 720,000 \ 320,000 \ 1,040,000 Variable costs Contribution margin 455,000 60,000 515,000 Fixed costs Operating income (loss) \ 379,000 \ 333,000 If Sweet Dreams can eliminate total fixed costs of $32,000 by dropping the pillows line,operating income will increase by $46,000.

(True/False)

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Question 93

A company has two different products that sell to separate markets.Financial data are as follows: Product A Product B Total Revenue \ 15,000 \ 9,000 \ 24,000 Variable costs (7,000) (9,200) (16,200) Fixed costs (allocated) (4,000) Operating income (loss) \ 4,000 \ (1,200) \ 2,800 Assume that fixed costs are all unavoidable and that dropping one product would not impact sales of the other.Because the contribution margin of Product B is negative,it should be dropped.

(True/False)

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Question 94

Differential analysis is a method that ________.

(Multiple Choice)

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Question 95

The process of evaluating relevant information that changes operating income under alternative courses of action is called ________.

(Multiple Choice)

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Question 96

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.

(True/False)

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Question 97

Transformation Motor 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 \ 18 Alba Motors Company has offered to sell 6,000 units of the same part to Transformation 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 Transformation do?

(Essay)

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Question 98

Dynamo Company is a price-taker.The company produces generators in a highly competitive market; thus,it uses target pricing.The current market price is $600 per unit.The company has $18,500,000 in average assets,and the desired profit is a return of 8% on assets.Assume all products produced are sold.The company provides the following information: Sales volume 65,000 units per year Variable costs \ 500 per unit Fixed costs \ 7,500,000 per year Currently the cost structure is such that the company cannot achieve its profit objective and must cut costs.If variable costs cannot be reduced,how much reduction in fixed costs will be needed to achieve the desired target? Show all computations.

(Essay)

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(90)

Question 99

Beacon Corporation manufactures two styles of lamps- Bedford Lamp and Lowell Lamp.The following per unit data are available: Bedford Lamp Lowell Lamp Sales price \ 28 \ 35 Variable costs \ 15 \ 23 Machine hours required for one lamp 1 4 Total fixed costs are $31,000,and Beacon can sell a maximum of 10,000 units of each style of lamp annually.Machine hour capacity is 25,000 hours per year.What is the contribution margin per machine hour for the Bedford Lamp? (Round your answer to the nearest cent.)

(Multiple Choice)

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Question 100

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

A depreciable asset's original cost is relevant when considering whether to replace the asset.

Merchandisers are constrained by the size of their stores,and managers must choose which products to display.

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

Which of the following would not be relevant in an outsourcing decision?

Differential analysis is a method that ________.

The process of evaluating relevant information that changes operating income under alternative courses of action is called ________.

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.

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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