Exam 13: Short-Run Decision Making: Relevant Costing

Typically in a special-order decision,a customer wants to pay more than the usual price.

Fixed costs are never relevant.

Future costs that differ across alternatives are

Super Pet Supplies sets prices at cost plus 70% of cost.The cost of an aquarium start-up kit is $110.What price does Super Pet Supplies charge for the aquarium start-up kit?

A segment margin is always greater than or equal to zero.

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.How many of each type of lamp must be sold to optimize total contribution margin?

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 equipment time for sinks?

Which of the following costs is not relevant to a decision to sell a product at split-off or process the product further and then sell the product?

Demand is one side of the pricing equation; supply is the other side.

A manager will make a __________________ when determining if a specially priced order should be accepted or rejected.

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. The incremental cost per unit associated with the special order is

Vest Industries manufactures 40,000 components per year.The manufacturing cost of the components was determined as follows: An outside supplier has offered to sell the component for $12.75.Fixed cost will remain the same if the component is purchased from an outside supplier. Vest Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component from the outside supplier. What is the effect on income if Vest purchases the component from the outside supplier?

Teller Company has designed a caller ID machine with a large screen that can be seen easily from across the room.The Sales Department believes that this product can be sold for $30 each.Teller requires that all new products yield 15% profit.What is the target cost of the new product?

A decision in which a manager needs to determine whether a product line (or segment)should continue or be eliminated is what kind of decision?

Limited resources and limited demand for a product are generally referred to as

A sunk cost isalways relevant.

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.Upon hearing of the analysis of the cost of making the metallic ink in-house versus buying it from an outside supplier,Jim Webb,the production supervisor said "That's nuts! This ink is a real pain to make and $1.24 per ounce sounds like a bargain to me!" Based on Jim's feelings,Anna Ruiz (a new CMA in the accounting office)did an ABC analysis of ink production.She came up with the same direct materials,direct labor and variable overhead,as well as the following information on activities required by metallic ink production. The metallic ink requires 300 purchase orders per year and 80 setups.

Most short-run decisions require extensive consideration of ___________.

The benefit sacrificed or foregone when one alternative is chosen over another is known as the ____________________.

Target costing can be used most effectively in the design and development stage of the product life cycle.