Exam 13: Short-Run Decision Making: Relevant Costing

Walloon Company produced 150 defective units last month at a unit manufacturing cost of $30.The defective units were discovered before leaving the plant.Walloon 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.The total relevant cost of reworking the defective units is:

In determining the target price of a good,the company must first determine the target cost and the desired profit.

At split-off,the joint costs of production for joint products are not relevant to the sell-or-process-further decision.

If a future cost is the same for more than one alternative,and it has no effect on the decision is known as a(n)_____________ cost.

A decision involving a choice between internal and external production is what kind of decision?

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.Assume that all of the fixed overhead is allocated and cannot be avoided.Should Ring purchase the part from the outside supplier?

Information about three joint products follows: The cost of the joint process is $60,000.Which of the joint products should be sold at split-off?

Rose Manufacturing Company had the following unit costs: A one-time customer has offered to buy 2,000 units at a special price of $48 per unit.Assuming that sufficient unused production capacity exists to produce the order and no regular customers will be affected by the order,how much additional profit or loss will be generated by accepting the special order?

The first step in making a short-run decision is to identify alternatives as possible solutions to the problem.

The act of choosing among alternatives with an immediate or limited end in view is termed

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

____________________ consists of choosing among alternatives with an immediate or limited end in view.

Junior Company currently buys 30,000 units of a part used to manufacture its product at $40 per unit.Recently the supplier informed Junior Company that a 20 percent increase will take effect next year.Junior has some additional space and could produce the units for the following per-unit costs (based on 30,000 units): If the units are purchased from the supplier,$200,000 of fixed costs will continue to be incurred.In addition,the plant can be rented out for $20,000 per year if the parts are purchased externally. Required: Should Junior Company buy the part externally or make it internally?

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.Now suppose that Santorino Company can sell only 5,500 units of each model.How many units of Model K-3 should be produced?

A company is considering a special order for 1,000 units to be priced at $8.90 (the normal price would be $11.50).The order would require specialized materials costing $4.00 per unit.Direct labor and variable factory overhead would cost $2.15 per unit.Fixed factory overhead is $1.20 per unit.However,the company has excess capacity and acceptance of the order would not raise total fixed factory overhead.The warehouse,however,would have to add capacity costing $1,300.Which of the following is relevant to the special order?

In order to be classified as a _________________,a cost must possess two characteristics,that they are future costs and they differ across alternatives.

Curtis Company sets price equal to cost plus 50%.Recently,Curtis charged a customer a price of $150 for an item.What was the cost of the item to Curtis?

Figure 13-2. ColorPro uses part 87A in the production of color printers.Unit manufacturing costs for part 87A are: ColorPro uses 100,000 units of 87A per year.Filbert Company has offered to sell ColorPro 100,000 units of 87A per year for $12.Fixed overhead is unavoidable. Refer to Figure 13-2.Which of the following is a qualitative factor that might affect ColorPro's decision?

A decision that focuses on whether a specially priced order should be accepted or rejected is what kind of decision?

Fester Company was making a product for $60 and selling it for $80.A competitor began selling the same product for $68.If Fester is to meet the competition's price,and maintain the same amount of profit per unit,what is target cost?