Exam 4: Fundamentals of Cost Analysis for Decision Making

The Axle Division of Becker Company produces axles for off-road sport vehicles.One-third of Axle's output is sold to an internal division of Becker; the remainder is sold to outside customers.Axle's 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 Axle Division cannot sell any additional products to outside customers.Should the Becker Company allow its internal division to purchase the axles from the outside supplier at $13.00 per unit?

For the past five years,the Selin Company has produced and sold frequency meters to genetics labs throughout the United States.Recently,a strong competitor has entered the market and Selin is considering whether it should continue to produce and sell the frequency meters.The following information has been gathered to assist management in their decision: A.Sales volume (units)is estimated to drop by 25% once the competitor becomes fully operational. B.The equipment used to produce the meters was purchased five-years ago for $1,500,000. C.The space now used to produce the meters would be reallocated to eliminate the need to rent warehouse space. D.Three of the employees who produce meters would be reassigned to the oscillator division. Which of the items listed above is (are)relevant to the decision to continue the production and sale of the frequency meters?

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.At what price would Bremmer be indifferent to Daisy's offer?

Fixed costs are always classified as sunk costs in differential cost analysis.

The practice of setting price below cost with the intent to drive competitors out of business:

The full cost fallacy occurs when a decision-maker fails to include fixed manufacturing overhead in the product's cost.

Only variable costs can be differential costs.

The price based on customers' perceived value for the product and the price that competitors charge:

The Axle Division of Becker Company produces axles for off-road sport vehicles.One-third of Axle's output is sold to an internal division of Becker; the remainder is sold to outside customers.Axle's 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 Axle Division cannot sell any additional products to outside customers.What is the minimum selling price that Axle should accept from the internal division?

Chetek Industries manufactures 15,000 components per year.The manufacturing cost of the components was determined to be as follows: Assume that the fixed manufacturing overhead reflects the cost of Chetek's manufacturing facility.This facility cannot be used for any other purpose.An outside supplier has offered to sell the component to Chetek for $34.If Chetek Industries purchases the component from the outside supplier,the effect on income would be a

Which of the following costs would continue to be incurred even if a segment is eliminated?

Chetek Industries manufactures 15,000 components per year.The manufacturing cost of the components was determined to be as follows: Assume Chetek Industries could avoid $40,000 of fixed manufacturing overhead if it purchases the component from an outside supplier.An outside supplier has offered to sell the component for $34.If Chetek purchases the component from the supplier instead of manufacturing it,the effect on income would be a

If there is only one alternative course of action and the status quo is unacceptable,then there really is no decision to make.

The time from initial research and development to the time that support to the customer ends is the

The differential analysis approach to pricing for special orders could lead to under-pricing in the long-run because fixed costs are not included in the analysis.

The Regal Baking Company is considering the expansion of its business into door-to-door delivery service.This would require an additional $12,500 in labor costs per month.Company-owned vehicles now used to make morning deliveries to restaurants could be used in the afternoons to make the home deliveries.However,it is estimated that an additional $5,000 would be required per month for gas,oil,and maintenance.It is further estimated that the home delivery use of the trucks would be allocated 45% of the existing $6,500 fixed vehicle costs.What is the differential delivery cost per month for expanding into the home delivery market?

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 minimum selling price that Axle should accept from the internal division?

For the past five years,the RS Company has produced and sold electronic magnets to chemistry labs throughout the United States.Recently,a strong competitor has entered the market and RS is considering whether it should continue to produce and sell the electronic magnets.The following information has been gathered to assist management in their decision: A.The machinery used to produce the magnet was purchased five-years ago for $500,000. B.Four of the employees who produce magnets would be reassigned to the magnifying glass division. C.The space now used to produce the magnets would be used to eliminate the need to rent warehouse space. D.Sales volume (units)is estimated to drop by 50% once the competitor becomes fully operational. Which of the items listed above is (are)relevant to the decision to continue the production and sale of the electronic magnets?

The relevance of a particular cost to a decision is determined by the: (CMA adapted)

In a decision analysis situation,which one of the following costs is not likely to contain a variable cost component? (CMA adapted)