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Exam 8: Relevant Costs for Short-Term Decisions

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Question 21

Multiple Choice

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Pluto Incorporated provided the following information regarding its single product: The regular selling price for the product is $80.The annual quantity of units produced and sold is 40,000 units (the costs above relate to the 40,000 units production level) .The company has excess capacity and regular sales will not be affected by this special order.There was no beginning inventory. What would be the effect on operating income of accepting a special order for 3,500 units at a sale price of $55 per product?

A) Increase by $115,500
B) Increase by $269,500
C) Decrease by $115,500
D) Decrease by $269,500

E) A) and B)
F) B) and D)

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Question 22

Multiple Choice

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The benefit foregone by choosing a particular alternative course of action is referred to as a(n)

A) sunk cost.
B) opportunity cost.
C) variable cost.
D) incremental cost.

E) None of the above
F) A) and B)

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Question 23

Multiple Choice

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Westfall Watches has two product lines: Luxury watches and Sporty watches.Income statement data for the most recent year follow: Assuming fixed costs remain unchanged,how would discontinuing the Sporty line affect operating income?

When a company is a price-setter,it emphasizes a target costing approach to pricing.

Which of the following pairs are characteristics of price-setters?

In a special sales order decision,incremental fixed costs that will be incurred if the special order is accepted are considered to be

Mama's Favorite Appliances manufactures two products: Food Processors and Espresso Machines.The following data are available: The company can manufacture two food processors per machine hour and three espresso machines per machine hour.The company's production capacity is 1,200 machine hours per month. To maximize profits,what product and how many units should the company produce in a month?

A drug store decides to discontinue its health and beauty section of products because it has been unprofitable.This strategy could backfire because

In most circumstances,all fixed costs can be eliminated by outsourcing a product.

Brigg's Breakfast Appliances manufactures two products: Waffle Makers and Coffee Makers.The following data are available: The company can manufacture two waffle makers per machine hour and three coffee makers per machine hour.The company's production capacity is 1,200 machine hours per month. What is the contribution margin per machine hour for waffle makers?

Jeff's Widget Corporation produces and sells a part used in the production of bicycles.The unit costs associated with this part are as follows: Saturn Company has approached Jeff's Widget Corporation with an offer to purchase 20,000 units of this part at a price of $.80.Accepting this special sales order will put idle manufacturing capacity to use and will not affect regular sales.Total fixed costs will not change. Determine whether or not the special order should be accepted.Justify your conclusion.

Common fixed costs that are allocated between departments are generally

Mama's Favorite Appliances manufactures two products: Food Processors and Espresso Machines.The following data are available: The company can manufacture two food processors per machine hour and three espresso machines per machine hour.The company's production capacity is 1,200 machine hours per month. What is the contribution margin per machine hour for food processors?

All of the following would be considered in evaluating product or sales mix allocations,except

Moon Appliance manufactures a variety of appliances which all use Part B89.Currently,Moon Appliance manufactures Part B89 in its internal manufacturing process.Moon Appliance produces 9,000 units of Part B89 annually.The annual costs to product Part B89 at the level of 9,000 units include: All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from an outside supplier.Moon Appliance has no alternative use for its manufacturing facilities.Nadal Parts Company has offered to sell 9,000 units of Part B89 to Moon Appliance for $20.00 per unit.What should Moon Appliance do?

When making outsourcing (make-or-buy)decisions,the focus is on how best to use available resources.

Changing the product mix emphasis in the short run will usually not affect

From a purely financial standpoint,if a product line has a negative contribution margin,the product line should be discontinued.

Cruise Company produces a part that is used in the manufacture of one of its products.The unit manufacturing costs of this part,assuming a production level of 6,000 units,are as follows: Assuming Cruise Company can purchase 6,000 units of the part from Suri Company for $14 each,and the facilities currently used to make the part could be rented out to another manufacturer for $24,000 a year,what should Cruise Company do?

Jackie has the following information to evaluate-her current salary of $74,000 versus total revenues of $100,000 and expenses of $65,000 from starting a new business.How much is the opportunity cost associated with staying at her current job?