Exam 7: Relevant Costs and Product Planning Decisions

Compton Products Inc. Compton Products Inc. manufactures humidifiers. The company currently makes all of the electronic components for the humidifier itself. When 10,000 units are manufactured each year, the motor costs per unit are as follows: McClintock Inc. has offered to sell Compton 10,000 motors for $25 per unit. If Compton accepts the offer, 75% of the fixed overhead currently allocated to the motors could be avoided. Refer to the Compton Products Inc. information above. What are the relevant costs per unit of Compton making the motors themselves?

Quality Products produces and sells screen-printed t-shirts to local organizations. The normal sales price per shirt is $12. Due to setup costs, they only accept orders of at least 100 shirts. The setup cost per order is $40 and the variable costs per shirt are $3. Fixed overhead costs per month total $2,000. Quality Products has the capacity to screen-print as many as 5,000 shirts per month, but is currently producing around 3,000. On May 1, the company was approached by a local non-profit group who wishes to place a single order for 100 shirts. The non-profit group has indicated that they can only pay $5 per shirt. Required:

Decker Products Decker Products manufactures standard and deluxe wooden swing sets. Selected data related to each product is as follows: Most of the manufacturing process for the sets is done on machines. There is a maximum of 10,000 machine hours available each year. Refer to the Decker Products information above. What is the contribution margin per unit of limited resource for each type of set?

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 for 40 birdhouses. 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. Preston requires a minimum $2,500 profit on any special order. The minimum price per birdhouse that Preston should charge the nursery is:

List at least two factors that should be considered in a make or buy decision.

In the decision on whether or not to drop an unprofitable product line, the product line will most likely be dropped if:

Compton Products Inc. Compton Products Inc. manufactures humidifiers. The company currently makes all of the electronic components for the humidifier itself. When 10,000 units are manufactured each year, the motor costs per unit are as follows: McClintock Inc. has offered to sell Compton 10,000 motors for $25 per unit. If Compton accepts the offer, 75% of the fixed overhead currently allocated to the motors could be avoided. Refer to the Compton Products Inc. information above. If Compton accepts the offer to purchase 10,000 motors from McClintock, the net income will:

Which of the following will always be considered in special order decisions?

In a sell or process further decision, if the incremental revenue of additional processing is greater than the incremental cost of additional processing, then:

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. What is the maximum amount of increase in net income from further processing?

In resource utilization decisions, managers should:

In deciding whether to sell a product or to process it further, which of the following pieces of information would not be relevant to the decision?

Berringer Enterprises manufactures 10 product lines. The following information is available for one of these product lines: The company's controller is considering dropping the line because it is unprofitable. The controller believes that if the line is dropped, overall company profits are guaranteed to increase. However, the managerial accountant says, "That is not necessarily always the case." Do you agree or disagree with the accountant? Why or why not?

Tremaine Inc. has three product lines: A, B, and C. Management is considering dropping product line A. If it is discontinued, $14,000 of its fixed costs can be avoided. The discontinuation of product line A would:

Which of the following is the least likely to be a consideration in a resource utilization decision?

The theory of constraints:

Wright Manufacturing Wright Manufacturing makes picnic tables in three sizes: small, medium, and large. The picnic tables can be sold with or without a finishing stain. The following information is available for each table: Refer to the Wright Manufacturing information above. Which table(s) should be processed further?

Which of the following statements is true regarding special order decisions?

Which of the following statements regarding resource utilization is not true?

Decker Products Decker Products manufactures standard and deluxe wooden swing sets. Selected data related to each product is as follows: Most of the manufacturing process for the sets is done on machines. There is a maximum of 10,000 machine hours available each year. Refer to the Decker Products information above. If demand were strong for both sets and the company could sell an unlimited number of either style, how many of which kind(s) of wooden swing set(s) should be produced in order to maximize profits?