Exam 13: Short-Run Decision Making: Relevant Costing

A decision that involves potential further processing of joint products is which kind of decision?

A choice between internal and external production is a keep-or-drop decision.

The markup includes desired profit and any costs not included in the base cost.

A cost that cannot be affected by any future action is called a(n)_______________.

Many companies start with cost to determine price since revenue must cover cost for the firm to make a profit.

A method of determining the cost of a product or service based on the price that customers are willing to pay is called ________________.

Figure 13-3. Elegance Bath Products,Inc.(EBP)makes a variety of ceramic sinks and tubs.EBP has just developed a line of sinks and tubs made from a mixture of glass and ceramic.The sinks sell for $150 each and have variable costs of $80.The tubs sell for $600 and have variable costs of $450.The glass and ceramic sinks and tubs require the use of specialized molding equipment.The specialized molding equipment has 4,050 hours of capacity per year.A sink uses an average of 2 hours of specialized molding equipment time; a tub uses an average of 5 hours of specialized molding equipment time. Refer to Figure 13-3.What is the contribution margin per hour of specialized molding time for tubs?

Salley Company makes pagers.Currently,Salley purchases 10,000 plastic housings per year from an outside company for $1 each.One of Salley's engineers suggested that the company make its plastic housings in-house.Estimated unit costs are as follows: * Fixed overhead is $2,400 per year in equipment costs specifically traceable to the plastic housing line and $1,600 per year in general overhead costs to be allocated to this line

Target costing involves much more up-front work than cost-based pricing.

The decision on whether to produce a product internally or purchase it from a supplier is an example of a _______________.

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 P-4 in terms of percent of a machine hour?

You decide The managers of Computer World are trying to determine the best method of deciding the price of their new ultra minicomputer.This computer will present the customers with several unique features that their other computers do not offer.They have asked you to explain the advantages and disadvantages of the two costing methods they are considering; markup costing and target costing.

Figure 13-10. Goutam Company prints a variety of publications and colored inserts for newspapers.Currently,Goutam produces its own ink,including a special metallic color.India Inks has offered to supply Goutam with the 25,000 ounces of metallic ink that it needs each year for $1.24 per ounce.Goutam is interested because this is a particularly difficult ink to make.The purchasing department must make special efforts to locate suppliers,the metallic component requires special handling,and,since the metallic ink uses machinery that is also used to make other colors of ink,the machinery must be cleaned very well before every batch of metallic.The accounting department supplied the following unit costs: *Fixed overhead is applied on the basis of a plantwide rate based on direct labor hours. Refer to Figure 13-10.

Qualitative factors that should be considered when evaluating a make-or-buy decision are

The operations of Smits Corporation are divided into the Child Division and the Jackson Division.Projections for the next year are as follows: Operating income for Smits Corporation as a whole if the Jackson Division were dropped would be

Figure 13-3. Elegance Bath Products,Inc.(EBP)makes a variety of ceramic sinks and tubs.EBP has just developed a line of sinks and tubs made from a mixture of glass and ceramic.The sinks sell for $150 each and have variable costs of $80.The tubs sell for $600 and have variable costs of $450.The glass and ceramic sinks and tubs require the use of specialized molding equipment.The specialized molding equipment has 4,050 hours of capacity per year.A sink uses an average of 2 hours of specialized molding equipment time; a tub uses an average of 5 hours of specialized molding equipment time. Refer to Figure 13-3.Assume that EBP can sell as many as 1,000 sinks and 500 tubs per year.How many tubs should EBP produce?

Figure 13-7. Ring Company makes telephones.Currently,Ring makes all components of the telephones in-house.An outside company has offered to supply one component,part number X76,for $12 each.Ring uses 22,000 of these components per year.Costs of X76 are as follows: Refer to Figure 13-7.Suppose that 30% of the fixed overhead is avoidable if part X76 is not made by Ring.Should Ring purchase the part from the outside supplier?

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 contribution margin per hour of machine time for a fancy lamp?

The operations of Grant Corporation are divided into the Fix Division and the Roach Division.Projections for the next year are as follows: Required:

Depreciation of equipment is an example of a(n)