The following are the unit costs of making and selling an item at a volume of 30,000 units per month (which represents the company's capacity):
Direct materials $6.00
Direct labor 12.00
Variable overhead 2.00
Fixed overhead 4.00
Selling and administrative
A) $8 per unit
The Weiden Corporation has 8,000 obsolete units of a product that are carried in inventory at a manufacturing cost of $160,000. If the units are remachined for $40,000, they could be sold for $72,000. Alternatively, the units could be sold for scrap for $
A) Remachine; $40,000
The $160,000 manufacturing cost is a sunk cost (i.e., a cost that has already been incurred and cannot be changed by any decision made now or in the future). Since it does not differ between the two alternatives, the manufacturing co
A study has been conducted to determine if one of the product lines of Saugatuck Company should be discontinued. This product line generates a contribution margin of $300,000 per year. Fixed expenses allocated to the product line are $390,000 per year. It
A) Decrease of $60,000 per year
Contribution margin that would be lost if product line is discontinued (300,000)
Less fixed costs that can be avoided if product line is discontinued 240,000
Increase/Decrease in net operating income (60,000)
Ferguson Company manufactures 4,000 parts per year; the parts are used in the assembly of one of the company's products. The unit product cost of these parts is:
Variable manufacturing cost $32
Fixed manufacturing cost 18
Unit product cost $50
The part ca
C) Increase of $16,000
The managers of a firm are in the process of deciding whether to accept or reject a special order for one of its products. Which cost is not relevant to this decision?
A) Common fixed overhead that will continue if the special offer is not accepted
B) Dir
A) Common fixed overhead that will continue if the special offer is not accepted
Bell Corporation manufactures solar-powered calculators. The company can manufacture 1,200,000 calculators a year at a variable cost of $3,000,000 and a fixed cost of $1,800,000. Based on management's projections for next year, 960,000 calculators will be
C) $840,000
First, compute the selling price per unit.
Special order selling price = Regular selling price of $20 - Discount of $14 (or $20 x 70%) = $6 per unit
Then, compute the variable cost per unit.
Variable cost per unit = Total variable costs of $3,
Canal Company sells its product for $126 per unit. The company's unit product cost, based on the full capacity of 300,000 units, is as follows:
Direct materials $24
Direct labor 30
Manufacturing overhead 36
Unit product cost $90
A special order offering t
A) $84
The fixed manufacturing overhead of $24 per unit (or total manufacturing overhead of $36 x 2/3) is not relevant; it does not differ between the two alternatives. The minimum acceptable selling price per unit (which is the relevant benefit or differ
Consider the following production and cost data for the two versions of the product that is manufactured and sold by Kensington Corporation:
Contribution margin per unit:
Basic- $480
Deluxe- $520
Machine set-ups required per unit:
Basic- 32 setups
Deluxe-
B) $3,900,000
First, determine which product generates the higher CM per setup as follows.
CM per setup = CM per unit � number of setups per unit
Basic version:
CM per setup = $480 � 32 = $15 per setup
Deluxe version:
CM per setup = $520 � 40 = $13 per se
Leonard Pottery makes plates, bowls, and platters using glazes that develop starburst patterns when the pottery is fired. The art of creating this pottery, which includes throwing, bisquing, and glazing, is a craft that takes years of experience to master
B) $24
Ciaran Corporation manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $50,000 per year. The company allocates these costs to the joint products on the basis of their tota
C) Product X and Z
A business segment should only be dropped if a company can avoid more in fixed costs than it gives up in:
A) contribution margin
B) net operating income
C) segment sales
D) variable costs
A) contribution margin
Deciding what to do with a joint product at the split-off point is a(n) ____ or _______ decision
sell, process further
Costs and benefits that always differ between alternatives are _____ costs and benefits
A) sunk
B) irrelevant
C) relevant
D) variable
C) relevant
A cost that has already been incurred and cannot be avoided regardless of what a manger decides to do is referred to as a(n) _____ cost
sunk
Which of the following should not be included in the analysis when making a decision? (more than one)
A) avoidable costs
B) opportunity costs
C) non-differential future costs
D) sunk costs
C, D
A decision to carry out one of the activities in the value chain internally rather than to buy externally from a supplier is a ______ decision
A) sell or process
B) make or buy
C) special order
D) product line
B) make or buy
A cost that can be eliminated in whole or in part by choosing one alternative over another is a(n):
A) avoidable cost
B) irrelevant cost
C) sunk cost
D) variable cost
A) avoidable cost
Costs that differ between alternatives are called _____ costs
relevant
Irrelevant costs include:
A) sunk costs
B) future costs that differ between alternatives
C) all fixed costs
D) future costs that do not differ between alternatives
A, D
Deciding what to do with a joint product at the split-off point is a:
A) sell or process further decision
B) special order decision
C) product line decision
D) make or buy decision
A) sell or process further decision
When the total amount of the cost will be the same regardless of the alternatives selected in a decision, what should be done about the cost in the decision analysis?
A) increase the cost
B) ignore the cost
C) consider the cost
D) lower the cost
B) ignore the cost
Determining whether to carry out an activity in the value chain internally or us a supplier is a _____ decision
A) make or buy
B) product line
C) special order
D) utilization of a constrained resource
A) make or buy
The machine or process that is limiting overall output is called a(n) _______
bottleneck
Costs and benefits that always differ between alternatives are _____ costs and benefits
A) irrelevant
B) variable
C) sunk
D) relevant
D) relevant
Which of the following techniques describe how a bottleneck should be managed?(more than one)
A) find ways to increase the capacity of the bottleneck
B) reduce the costs of the least profitable products
C) ensure there is minimal lost time at the bottlene
A,C,D