Exam 25: Short-Term Business Decisions

Haskins Products sells 2,200 kayaks per year at a sales price of $500 per unit.Haskins sells in a highly competitive market and uses target pricing.The company has calculated its target full product cost at $750,000 per year.Total variable costs are $250,000 per year and cannot be reduced.Assume all products produced are sold.What are the target fixed costs?

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

Revolve Company is a price-taker and uses a target-pricing approach.Refer to the following information: What is the target full product cost in total for the year? Assume all units produced are sold.

Sand Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp.The following per unit data are available: 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.

Lehigh Roller Skates has three product lines-D,E,and F.The following information is available: The company is deciding whether to drop product line F because it has an operating loss.Assume that $15,000 of total fixed costs could be eliminated by dropping F.What effect would this decision have on operating income?

Assuming there are no other significant considerations,a product line with a negative contribution margin should be dropped.

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?

Wing Company makes a special kind of racing tire.Variable costs are $340,and fixed costs are $35,500 per month.Wing sells 620 units per month at a sales price of $400.If Wing upgrades the quality of the tire,management believes that the sales price can be increased to $450.If so,the variable cost will increase to $370,and the fixed costs will rise by 30%.The CEO wishes to increase his operating income by 20%.If the company decides to upgrade the product,the CEO will reach his goal.

A company has two different products that are sold in different markets.Financial data are as follows: 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?

Ridley Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp.The following per unit data are available: Total fixed costs are $40,000.Marketing data indicate that the company can sell up to 8,000 units of the Bedford Lamp and up to 4,000 units of the Lowell Lamp.Machine hour capacity is 26,000 hours per year.Which product mix will deliver the optimum operating income?

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

Battista 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: 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?

Todd Corporation produces two products,P and Q.P sells for $4.00 per unit;Q sells for $5.50 per unit.Variable costs for P and Q are $2.00 and $4.50,respectively.There are 7,300 direct labor hours per month available for producing the two products.Product P requires 2.50 direct labor hours per unit,and product Q requires 2.00 direct labor hours per unit.The company can sell as many of either product as it can produce.What is the maximum monthly contribution margin that Todd can generate under the circumstances? (Round your answer to nearest whole dollar. )

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? Which of the information provided in the table is irrelevant to the replacement decision?

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 ________.

Grand Products is a price-setter that uses the cost-plus pricing approach for pricing its products.These products are unique,artistically designed architectural decorations.Grand produces and sells 6,200 units per year,which represent maximum capacity.Variable costs are $330 per unit.Total fixed costs are $900,000 per year.The CEO has a target of $50,000 in operating income,which he wants to achieve by year-end.Using the cost-plus pricing method,what sales price should Grand use? (Round your answer to the nearest cent. )

Clay Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp.The following per unit data are available: Total fixed costs are $30,000,and Clay can sell a maximum of 10,000 units of each style of lamp annually.Machine hour capacity is 30,000 hours per year.What is the contribution margin per machine hour for the Bedford Lamp? (Round your answer to the nearest cent. )

A company sells two products with information as follows: 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?

Leslie's Sunglass Company's western territory's forecasted income statement for the upcoming year is as follows: The company's management is considering dropping the western territory and has determined that $300,000 of the fixed expenses is avoidable.What is the change in Leslie's Sunglass Company's forecasted operating for the upcoming year if the western territory is dropped? Assume the company predicts an operating loss across the entire company.

Centric 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: If a special pricing order is accepted for 5,600 sails at a sales price of $150 per unit,and fixed costs remain unchanged,what is the change in operating income? (Assume the special pricing order will require variable manufacturing costs and variable selling and administrative costs. )