Exam 25: Short-Term Business Decisions

A company sells two products with information as follows: Products are made by machine.Six units of product A can be made with five machine hours and three units of product B can be made with 0.8 machine hour.If there are no constraints on production or sales of either product,then the company should emphasize sales of product B.

A company is a price-taker when ________.

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

If a business is considering whether to replace old equipment with newer equipment,the cost of operating the old equipment,compared to the cost of operating the new equipment,is relevant to the business decision.

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.

Worthington Sailboats Company manufactures 80 luxury yachts per month.Included in each yacht is a compact media center.Worthington Sailboats manufactures the media center in-house.The company is considering the possibility of outsourcing the production of the media centers in order to close down some of its facilities and reduce the administrative costs.At present,the variable cost per unit is $280,and fixed costs are $54,000 per month.Assume that if it outsources,fixed costs could be reduced by 60%.The production manager advised the company to contract with a foreign supplier who offered a contract cost of $400 per unit.If it outsources the media center,how would that affect operating income?

List three questions managers should consider when deciding whether to drop a product or a business segment.

A sunk cost is a cost that was incurred in the past and cannot be changed regardless of what future action is taken.

Fantabulous Products sells 2,200 kayaks per year at a price of $460 per unit.Fantabulous 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.Assume all products produced are sold.What is the target full product cost?

Julian Company is a price-taker and uses target pricing.Refer to the following information: With the current cost structure,Julian 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 unit per year? Assume all units produced are sold.(Round your answer to the nearest cent. )

Healthier Living Company manufactures two products-toaster ovens and bread machines.The following data are available: Healthier Living can manufacture six toaster ovens per machine hour and four bread machines per machine hour.Healthier Living's production capacity is 2,000 machine hours per month.What is the contribution margin per machine hour for bread machines?

A company produces 500 microwave ovens per month,each of which includes one electrical circuit.The company currently manufactures the circuit in-house but is considering outsourcing the circuits at a contract cost of $28 each.Currently,the cost of producing circuits in-house includes variable costs of $24 per circuit and fixed costs of $6,000 per month.Assume the company could not reduce any fixed costs 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 ________.

In deciding whether to drop its electronics product line,a company's manager should ignore ________.

Regarding relevant nonfinancial information,which of the following statements is incorrect?

Carlos Naturals manufactures bulk quantities of cleaning fluids.The company currently sells 900 containers a month at a sales price of $26 per unit.The addition of a new disinfectant will result in a sales price of $28 per unit for the improved product.It would cost a total of $4,200 per month to make the alteration.Operating income would ________.

Mickey Tire Company makes a special kind of racing tire.Variable costs are $221 per unit,and fixed costs are $30,000 per month.Mickey sells 500 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 $349.If so,the variable cost will increase to $230 per unit,and the fixed costs will rise by 50%.If Mickey decides to upgrade,how will operating income be affected?

In deciding whether to accept a special pricing order,management should only consider the quantitative data and disregard qualitative factors.

Macaulay 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.Assuming fixed costs are unavoidable,if Macaulay drops product line F and does not replace it,what effect will this have on operating income?

Malmo Avionics makes aircraft instrumentation.Its basic navigation radio requires $60 in variable costs and $5,000 per month in fixed costs.Further processing the radio,to enhance its functionality,will require an additional $28 per unit of variable costs,plus an increase in fixed costs of $290 per month.The marketing manager believes that they would be able to increase the sales price of the radio from $290 to $310.Malmo sells 45 radios per month.If Malmo decides to further process the radio,monthly operating income would ________.