Exam 30: Cost-Revenue Analysis for Decision Making

Using the given information, determine the income under both the absorption and the direct (variable) costing methods for CRL Company this year. Explain the difference, if any. Beginning Inventory units -0- Units produced 12,400 Ending Inventory 1,400 Sales price per unit \5 0.00 Variable manufacturing costs per unit 22.00 Variable selling \& administrative costs per unit 5.00 Fixed manufacturing costs \5 8,900 Fixed selling and administrative costs \7 5,020

Using the absorption method, the cost of goods sold is:

When direct costing is used, cost of goods sold reflects

Using the absorption method, the value of ending inventory of finished goods is:

If a decision must be made to close a warehouse, non-refundable prepaid rent on the warehouse is

Segment managers can never control fixed costs.

Using the absorption method, the gross profit on sales is:

Using direct costing, the marginal income on sales is:

Costs that are not directly traceable to any specific department are called ____________________ costs.

If a decision must be made about whether to replace a machine, the ____________________ value of the existing machine is irrelevant.

Fixed manufacturing costs are written off as current expenses of the period in which they occurred when using

If a segment of a business is expected to produce an annual contribution margin of $30,000 but is also expected to incur controllable fixed costs of about $40,000 annually, that segment should probably be discontinued.

Contribution margin is calculated by

Data for a firm's first year of operation is given below. The firm uses direct costing. Units produced (no work in process) 6,000 Units sold 5,000 Units in ending inventory of finished goods 1,000 Sales price for each unit \ 75 Variable manufacturing costs for each unit manufactured \ 30 Variable selling and admin. expenses for each unit sold \ 16 Fixed manufacturing costs for the year \ 90,000 Fixed selling and admin. expenses for the year \ 65,000 1. What is the ending inventory of finished goods? 2. What is the cost of goods sold? 3. What is the manufacturing margin for the year? 4. What is the net income (loss) for the year?

In deciding whether to manufacture or to purchase a product, ____________________ costs are generally ignored.

When the balance in ending finished goods inventory increases, net income under absorption costing

The Alvarado Equipment Corporation is currently manufacturing a part that goes into its main product. Each year 2,500 of these parts are used. Cost data for the past year that relates to the 2,500 parts is given below. Fixed costs are allocated on the basis of direct labor hours. An outside company has offered to supply the part for $45 a unit, plus a shipping charge of $2 a unit. The plant capacity now used by Alvarado to manufacture the part would not be used within the foreseeable future if the part is purchased outside. Direct Materials \ 60,000 Direct Labor 65,000 Variable Overhead Costs 2,500 Fixed Overhead Costs 5,000 Prepare an analysis comparing the unit cost of manufacturing the part with the unit cost of purchasing it. Based on the analysis, indicate the decision that should be made.

It is appropriate to consider nonfinancial factors in the decision-making process.

The Lourdes Corporation manufactures fans. A newly-formed construction company in the area desires to buy up to 300 of their Model CSB3192 this year. Lourdes quoted them a price of $67 which covers all costs plus markon. The construction company has indicated that they will buy all the fans they need in the future from Lourdes Corporation if Lourdes will sell the fans for $60 each. Lourdes Corporation has the capacity to make the 300 fans above their usual production needs. Currently, Lourdes ships all of their production to companies in other parts of the country, but do not usually sell any locally. If the $60 offer covers all costs and allows a small markon, what other things should Lourdes consider before coming to a final decision?

Direct costing is extremely useful in setting prices of products in special-order situations.