Exam 13: Short-Run Decision Making: Relevant Costing

The following information relates to a product produced by Creamer Company: Fixed selling costs are $500,000 per year,and variable selling costs are $12 per unit sold.Although production capacity is 600,000 units per year,the company expects to produce only 400,000 units next year.The product normally sells for $120 each.A customer has offered to buy 60,000 units for $90 each. If the firm produces the special order,the effect on income would be a

Which of the following is not a step in the decision-making model?

Figure 13-5. Santorino Company produces two models of a component,Model K-3 and Model P-4.The unit contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14.Each model must spend time on a special machine.The firm owns two machines that together provide 4,000 hours of machine time per year.Model K-3 requires 15 minutes of machine time; Model P-4 requires 30 minutes of machine time. Refer to Figure 13-5.What is the contribution margin per unit of scarce resource (machine time)for Model P-4?

Miller Company produces speakers for home stereo units.The speakers are sold to retail stores for $30.Manufacturing and other costs are as follows: The variable distribution costs are for transportation to the retail stores.The current production and sales volume is 20,000 per year.Capacity is 25,000 units per year. A Tennessee manufacturing firm has offered a one-year contract to supply speakers at a cost of $17.00 per unit.If Miller Company accepts the offer,it will be able to rent unused space to an outside firm for $18,000 per year.All other information remains the same as the original data.What is the effect on profits if Miller Company buys from the Tennessee firm?

Shear-it,Inc.,produces paper shredders.Shear-it is considering a new shredder design for home offices.The marketing vice president believes that a basic unit in a variety of attractive colors could be sold for $70.Shear-it requires that all new products yield 30% profit.What is the target cost of the new shredder?

Classy Carry manufactures two types of handbags,the Clutch and the Tote,with unit contribution margins of $9 and $15,respectively.Regardless of the type,each handbag must go through a stitching machine.The company owns 4 stitching machines and each provides 3,000 hours of machine time per year.Each Clutch handbag requires 12 minutes of machine time and each Tote handbag requires 30 minutes of machine time.There are no other constraints.

Victor's Detailing customers would be willing to pay $57 per detail.The company requires an 80% markup on each job.The average job would cost $30. Victor's Detailing uses markup pricing to set the price on each job.What is the price Victor should quote a new customer?

Sherrell Washington owns a successful hole-in-the-wall bagel shop called Big Apple Bagels.Sherrell wants to expand the shop by leasing the space next door for $500 per month,and adding tables and chairs so that customers can dine in.She figures that the tables and chairs will cost $4,000 and that the bagel machine,that cost $3,500 five years ago,would have to be scrapped in favor of a larger machine costing $6,400.She thinks sales would increase by $4,000 per month.Variable costs are 50% of sales.

Figure 13-4. Connolly Company produces two types of lamps,classic and fancy,with unit contribution margins of $13 and $21,respectively.Each lamp must spend time on a special machine.The firm owns four machines that together provide 18,000 hours of machine time per year.The classic lamp requires 0.20 hours of machine time,the fancy lamp requires 0.50 hours of machine time. Refer to Figure 13-4.What is the total contribution margin of the optimal mix of classic and fancy lamps?

Wilson Custom Cabinetry makes cabinets to order and prices the completed jobs at product cost plus 40%.Recently,Wilson finished a job and billed the customer $560.If direct materials for the job cost $130,and direct labor cost $180,what was the applied overhead for the job?

Figure 13-8. Kerrigan Lumber Yard receives 12,000 large trees each year that they process into rough logs.Currently,Kerrigan sells the rough logs for $75 each.Kerrigan is considering processing the logs further into refined lumber.Each log can be processed into 200 feet of refined lumber at an additional cost of $0.40 per foot.The refined lumber can be sold for $0.95 per foot. Refer to Figure 13-8.Assume that the cost of getting the 12,000 large trees falls by half.Should Kerrigan sell the rough logs at split-off or process it further?

Figure 13-5. Santorino Company produces two models of a component,Model K-3 and Model P-4.The unit contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14.Each model must spend time on a special machine.The firm owns two machines that together provide 4,000 hours of machine time per year.Model K-3 requires 15 minutes of machine time; Model P-4 requires 30 minutes of machine time. Refer to Figure 13-5.What is the amount of machine time for model K-3 in terms of percent of a machine hour?

Pasha Company produced 50 defective units last month at a unit manufacturing cost of $30.The defective units were discovered before leaving the plant.Pasha can sell them "as is" for $20 or can rework them at a cost of $15 and sell them at the regular price of $50.Which of the following is not relevant to the sell-or-rework decision?

Gundy Company manufactures a product with the following costs per unit at the expected production of 30,000 units: The company has the capacity to produce 30,000 units.The product regularly sells for $40.A wholesaler has offered to pay $32 per unit for 2,000 units. If the firm chooses to accept the special order and reject some regular sales,the effect on operating income would be

________________ refers to the relative amount of each product manufactured by a company.

Bellair Company produces a product that has manufacturing cost of $30 per unit.Bellair's policy is to charge a price equal to cost plus 30%.The 30% is pure profit to Bellair.

Figure 13-9. Sabor Inc.is a medical testing laboratory that performs several tests and analyses for hospitals in the area.Four of the tests that they perform require the use of a specialized machine that can supply 14,000 hours per year.Information on the four lab tests follows: Refer to Figure 13-9.What is the contribution margin per hour of machine time for Test A?

The percentage that is applied to the base cost is known as the _____________.

Tyler Company has been approached by a new customer with an offer to purchase 6,000 units of its product KR200 at a price of $11 each.The existing sales would not be affected by this special order.Tyler normally produces 40,000 units but plans to produce and sell 30,000 in the coming year.The normal sales price is $18 per unit.Unit cost information is as follows: If Tyler accepts the order,no fixed manufacturing activities will be affected because there is sufficient excess capacity.

Reggie Corporation manufactures a single product with the following unit costs for 1,000 units: Recently,a company approached Reggie Corporation about buying 100 units for $5,100 each.Currently,the models are sold to dealers for $7,800.Reggie Corporation's capacity is sufficient to produce the extra 100 units.No additional selling expenses would be incurred on the special order. How much will income change if the special order is accepted?