Exam 25: Short-Term Business Decisions

The income statement for Bedtime Company is divided by its two product lines,blankets and pillows,as follows: Bedtime is considering eliminating the pillows product line.If this line is eliminated,Bedtime will be able to eliminate $72,000 of total fixed costs.How would this business decision impact operating income?

A company spent $750,000 to produce 225,000 gallons of a chemical free product that can be sold for $6.00 per gallon.This product can be further processed into a household cleaning solution that can be sold for $8.50 per gallon.It will cost $360,000 to process the chemical free product into the household cleaning solution. Prepare a differential analysis to determine if the product should be processed further.Discuss the results.

DM Corporation has provided you with the following budgeted income statement for one of its products: DM has just encountered environmental problems with the product and will be forced to drop the product line altogether.DM will be able to eliminate 60% of the fixed costs.What will be the impact on operating income of the company?

Michael's Hats,Inc.has two product lines-batting helmets and football helmets.The income statement data for the most recent year is as follows: If $90,000 of fixed costs will be eliminated by dropping the football helmets line,how will dropping football helmets affect operating income of the company?

A company produces 1,000 packages of chicken feed per month.The sales price is $6 per pack.Variable cost is $1.50 per unit,and fixed costs are $1,700 per month.Management is considering adding a vitamin supplement to improve the value of the product.The variable cost will increase from $1.50 to $2.00 per unit,but there will be no change in fixed costs.The company will price the new product at $4.30 to compete with other products.How will this affect operating income?

Cassa Company is a price-taker and uses target pricing.Refer to the following information: With the current cost structure,Cassa 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.

Boylan Company manufactures two products-toaster ovens and bread machines.The following data are available: Boylan can manufacture six toaster ovens per machine hour and four bread machines per machine hour.Boylan's production capacity is 1,800 machine hours per month.Marketing limitations indicate that Boylan can sell a maximum of 5,000 toasters and 4,000 bread machines per month.Which product and how many units should the company produce in a month to maximize profits? (Round machine hour per unit to two decimal places and your final answer to the nearest whole dollar. )

A company has two different products that are sold in different markets.Financial data are as follows: Assume that fixed costs are all unavoidable and 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?

Fixed costs are relevant to a special pricing decision if they are subject to change as a result of the special order.

Costs that do not differ between alternatives are ________.

Cambridge 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 $21,000 of total fixed costs could be eliminated by dropping F.What effect would this decision have on operating income?

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

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: 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. )

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: 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?

Which of the following statements is true?

Peacock,Inc.sells 2,100 kayaks per year at a sales price of $500 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 $340,000 per year and cannot be reduced.What is the target variable cost per unit assuming units sold are equal to units produced?

A company should decide to process its product further if the additional processing generates higher sales revenues.

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: 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. )

Valuable Electronics uses a standard part in the manufacture of different types of radios.The total cost of producing 29,000 parts is $105,000,which includes fixed costs of $50,000 and variable costs of $55,000.The company can buy the part from an outside supplier for $2 per unit and avoid 30% of the fixed costs.Assume that the company can use the freed manufacturing space to make another product that can earn a profit of $16,000.If Valuable outsources,what will be the effect on operating income?

Superior Containers produces restaurant storage containers .The company makes two sizes of containers: regular (55 gallon)and large (100 gallon).Demand for the products is so high that Superior can sell as many of each size as it can produce.The company uses the same machinery to produce both sizes.The machinery can be run for only 2,500 hours per period.Superior can produce 20 regular containers every hour,whereas it can produce 8 large containers in the same amount of time.Fixed costs amount to $250,000 per period.Sales prices and variable costs are as follows: To maximize profits,how many of each size container should Superior produce? Given this product mix,what will the company's operating income be?