Exam 4: Fundamentals of Cost Analysis for Decision Making

The Clapton Company manufactures two products: Alpha and Beta.The costs and revenues are as follows: Total demand for Alpha is 10,000 units and for Beta is 6,000 units.Machine time is a scarce resource.During the year,50,000 machine hours are available.Alpha requires 4 machine hours per unit,while Beta requires 2.5 machine hours per unit. What is the maximum contribution margin Clapton can achieve during a year?

Dumping occurs when a company exports its product to consumers in another country at an export price that is below the domestic price.

The AZ Company manufactures kitchen utensils.The company is currently producing well below its full capacity.The BV Company has approached AZ with an offer to buy 20,000 utensils at $0.75 each.AZ sells its utensils wholesale for $0.85 each; the average cost per unit is $0.83,of which $0.12 is fixed costs.If AZ were to accept BV's offer,what would be the increase in AZ's operating profits?

Which of the following statements about the theory of constraints is (are)true? (A)The theory of constraints focuses on determining the optimal product mix when one or more resources restrict the attainment of a goal or objective. (B)The theory of constraints focuses on maximizing the rate of throughput contribution while minimizing investment and other operating costs.

The operations of Blink Corporation are divided into the Will Division and the Aloy Division.Projections for the next year are as follows: Operating income for Blink Corporation as a whole if the Carter Division were dropped would be

The Blade Division of Axe Company produces hardened steel blades.One-third of Blade's 30,000 unit output is sold to the Forestry Products Division of Axe; the remainder is sold to outside customers.Blades' estimated operating profit for the year is: The Forestry Division has an opportunity to purchase 10,000 blades of the same quality from an outside supplier on a continuing basis.The purchase price would be $1.25.If the Blade Division is now operating at full capacity and can sell all its units to outside customers at the present selling price,what is the differential cost to Axe of requiring that the blades be made internally and sold to the Forestry Division?

Bryon Industries manufactures 20,000 components per year.The manufacturing cost of the components was determined as follows: An outside supplier has offered to sell the component for $17.If Bryon purchases the component from the outside supplier,the manufacturing facilities would be unused and could be rented out for $10,000.If Bryon purchases the component from the supplier instead of manufacturing it,the effect on income would be:

The reason opportunity costs are not included in the accounting system is because they involve estimates.

The Bremmer Company produces 5,000 units of item ZQ98 annually at a total cost of $200,000. The Daisy Company has offered to supply all 5,000 units of ZQ98 per year for $35 per unit.If Bremmer accepts the offer,$8 per unit of the fixed overhead would be saved.In addition,some of Bremmer's leased facilities could be vacated,reducing lease payments by $30,000 per year.What are the relevant costs for the "make" alternative?

The CJP Company produces 10,000 units of item S10 annually at a total cost of $190,000. The XYZ Company has offered to supply 10,000 units of S10 per year for $18 per unit.If CJP accepts the offer,$4 per unit of the fixed overhead would be saved.In addition,some of CJP's facilities could be rented to a third party for $15,000 per year.At what price would CJP be indifferent to XYZ's offer?

Which of the following statements about the theory of constraints is (are)true? (A)The theory of constraints focuses on determining the optimal product mix when two or more resources restrict the attainment of a goal or objective. (B)The theory of constraints focuses on maximizing the rate of throughput contribution while maximizing investment and other operating costs.

Which of the following costs are irrelevant for a special order that will allow an organization to utilize some of its present idle capacity?

Financial statements prepared in accordance with generally accepted accounting principles (GAAP)provide differential cost information.

Cameron Tool Company has two retail stores,one in Dallas and the other in Sand Creek.The Dallas store had sales of $200,000,a contribution margin of 35 percent,and a segment margin of $28,000.The company's two stores have total sales of $500,000,an average contribution margin of 32 percent,and a total segment margin of $62,000.Prepare a segmented contribution approach statement for Cameron.

Which of the following statements regarding special orders is (are)true? (A)The primary decision for special orders is determining whether the differential revenue is greater than the differential costs associated with the order. (B)The differential analysis approach to pricing for special orders could lead to underpricing in the long-run because fixed costs are not included in the analysis.

Which of the following costs are not considered in a differential analysis for a make-or-buy decision?

Differential analysis involves the comparison of one or more alternative courses of action with the status quo.

The following information relates to the Tram Company for the upcoming year. The cost of goods sold includes $1,200,000 of fixed manufacturing overhead; the operating expenses include $100,000 of fixed marketing expenses.A special order offering to buy 50,000 units for $7.50 per unit has been made to Tram.Fortunately,there will be no additional operating expenses associated with the order and Tram has sufficient capacity to handle the order.How much will operate profits be increased if Tram accepts the special order?

The Axle Division of Becker Company produces axles for off-road sport vehicles.One-third of Axle's 30,000 unit output is sold to an internal division of Becker; the remainder is sold to outside customers.Axles' estimated operating profit for the year is: The internal division has an opportunity to purchase 10,000 axles of the same quality from an outside supplier on a continuing basis.The purchase price would be $13.00.If the Axle Division is now operating at full capacity and can sell all its units to outside customers at the present selling price,what is the differential cost to Becker of requiring that the axles be made internally and sold to the internal division?

The Lemaire Company manufactures wiring tools.The company is currently producing well below its full capacity.The Boisvert Company has approached Lemaire with an offer to buy 10,000 tools at $1.75 each.Lemaire sells its tools wholesale for $1.85 each; the average cost per unit is $1.83,of which $0.27 is fixed costs.If Lemaire were to accept Boisvert's offer,what would be the increase in Lemaire's operating profits?