Exam 7: Relevant Costs and Product Planning Decisions

Hannah's Homemade Cookies produces and sells delicious shortbread cookies. The cost of producing a bag of cookies is $.65 and the bag sells for $3.75. Hannah is considering processing all the cookies further by dipping them in chocolate. The additional processing costs would be $.50 per bag and the sales price of the chocolate-dipped cookies would be $4.20 per bag. If Hannah can sell 5,000 bags of either type of cookie per year, which of the following statements is true if she chooses to process the cookies further?

Quinton Products manufactures digital cameras. Currently, the company manufactures its own carrying case for the cameras at the following unit costs: Another manufacturer has offered to supply Quinton with the case at a cost of $6 each. Quinton currently makes 9,000 cases annually. If Quinton accepts the offer, what will be the short-term impact on net income?

Serenity Garden Inc. Serenity Garden Inc. produces and sells a variety of garden accessories. One of the product lines the company makes is unpainted gnome statues that come in three sizes: small, medium, and large. The company is considering painting the gnomes. The following information is available regarding unpainted and painted gnomes: Refer to the Serenity Garden Inc. information above. What is the maximum amount of increase in net income from further processing?

A local skating rink charges each person $5 to skate and another $3 for each skate rental. The rink has determined that on a daily basis, when 100 tickets are sold, the costs per skater are $.50 for variable costs and $1 for fixed overhead costs. The rink has the capacity for up to 175 skaters per day. A local kid's day camp has asked the rink to allow up to 35 children to skate for $2.50 each on July 15. This price would include the cost of a skate rental. During July, the rink averages 100 skaters per day. Required:

Preston Wade Preston Wade, a local craftsman, normally sells his handcrafted wooden birdhouses for $145 each. Preston has the capacity to produce as many as 60 birdhouses a week. In a normal week, Preston makes 20 birdhouses with the following costs per unit: Refer to the Preston Wade information above. Preston has received a special order from a local plant nursery to purchase 40 birdhouses for a price of $80 each. The nursery wishes to have the birdhouses engraved with their own logo, therefore, the order would require the rental of a special engraving tool at a cost of $250. If Preston accepts the special order, net income will increase by:

Joyner Products Joyner Products makes cedar garden benches in three sizes: small, medium, and large. Joyner sells the benches to local retailers. The benches can be sold with or without assembly. The following information is available for each table: Refer to the Joyner Products information above. Which bench(es) should be assembled before they are sold to retailers?

A local science museum normally sells tickets to its museum for $5 each. The daily maximum capacity of the museum is 1,000 visitors. At the maximum capacity, fixed costs are $2 per visitor and variable costs are $1.50 per visitor. A local school group has approached the museum wishing to purchase 50 special passes at a cost of $2.50 each. Assuming the museum has excess capacity, if the special order were accepted, net income would:

Paxton Products has three product lines: A, B, and C. Management is considering dropping product line B. In order for the dropping of product line B to not cause an overall decrease in profits, product line B's avoidable fixed costs should be at least:

When are fixed costs relevant in a make or buy decision? Give one example of a relevant fixed cost.

Carlton Products has three product lines: A, B, and C. Management is considering dropping product line B. If it is discontinued, all of its fixed costs can be avoided. The discontinuation of product line B would:

Which of the following statements is true when a company is considering whether to make or buy a component of a product that it currently manufactures?

Kellerman Detailing Service Kellerman Detailing Service provides two types of car detailing packages: the standard and the deluxe. Selected data related to each package is as follows: Most of the car detailing is done by hand. Refer to the Kellerman Detailing Service information above. There is a maximum of 4,050 direct labor hours available each year. If demand were equally strong for both packages and the company could sell an unlimited number of either package, how many of which kind(s) of package(s) should be sold in order to maximize profits?

Which of the following types of costs should always be considered in special order decisions?

Tilton Food Warehouse Club sells food and other items in bulk to its members. Tilton is very selective in the products it sells because of limited shelf space. It has been asked by a canned vegetables manufacturer to consider adding three of its canned food items. The following information is available regarding each of the possible canned food items: Assuming that there is unlimited demand for all items, if Tilton has 15 feet of shelf space available, which of the following statements is true if they wish to maximize profits?

In the production process, bottlenecks:

Vertical integration:

Kellerman Detailing Service Kellerman Detailing Service provides two types of car detailing packages: the standard and the deluxe. Selected data related to each package is as follows: Most of the car detailing is done by hand. Refer to the Kellerman Detailing Service information above. For the upcoming year, there is a maximum of 4,300 direct labor hours available. Management believes that the demand for both the standard and deluxe detailing is limited to 1,000 each per year. How many standard and deluxe detailing jobs should be sold in the upcoming year in order to maximize profits?

A local vendor at the county fair sells snow cones for $.50 each. When 250 snow cones are sold, each snow cone is estimated to have $.10 in variable costs and $.15 in fixed costs. A local school group plans on attending the fair next week and wishes to purchase 50 snowcones for $.25 each. The vendor can sell as many as 400 snowcones per day. What is the minimum price the vendor should charge for the snowcones?

When are fixed costs relevant in a make or buy decision?

Which of the following is most likely to represent a bottleneck?