Exam 4: Fundamentals of Cost Analysis for Decision Making

Which of the following statements regarding differential costs is (are)false? (A)The full cost fallacy occurs when a decision-maker fails to include fixed manufacturing overhead in the product's cost. (B)When deciding whether or not to accept a special order,a decision-maker should focus on differential costs instead of full costs.

Price discrimination is the practice of selling identical goods or services to different customers at different prices.

Differential analysis cannot be used for long-run decisions because it cannot incorporate the timing of revenues and costs (i.e.,the time-value of money).

The alternative courses of action in a make-or-buy decision are (a)manufacture needed items internally or (b)purchase needed items externally.

The Speedy Delivery Service is considering the expansion of its business into afternoon retail delivery service.This would require an additional $25,000 in labor costs per month.Company-owned vehicles now used to make morning deliveries to local manufacturers could be used in the afternoons to make retail deliveries.However,it is estimated that an additional $10,000 would be required per month for gas,oil,and maintenance.It is further estimated that the retail delivery use of the trucks would be allocated 45% of the existing $13,000 fixed vehicle costs.What is the differential delivery cost per month for expanding into the retail delivery market?

Bisson Industries has two divisions: the North Division and the South Division.Information relating to the divisions for the year just ended is as follows: Common fixed expenses have been allocated equally to each of the two divisions.Prepare a segmented contribution approach income statement for Bisson

The Buchanan Company has gathered the following information for a unit of its most popular product: The above cost information is based on 10,000 units.A distributor has offered to buy 2,000 units at a price of $32 per unit.The distributor claims this special order would not disturb regular sales at $42.Special packaging and other selling expenses would be an additional $0.50 per unit for the special order.How many units of regular sales could be lost before this contract is not profitable?

If there is excess capacity,the minimum acceptable price for a special order must cover

The following information relates to the Jax Company for the upcoming year. The cost of goods sold includes $2,400,000 of fixed manufacturing overhead; the operating expenses include $200,000 of fixed marketing expenses.A special order offering to buy 50,000 units for $15.00 per unit has been made to Jax.Fortunately,there will be no additional operating expenses associated with the order and Jax has sufficient capacity to handle the order.How much will operating profits increase if Jax accepts the special order?

Albany Industries produces two products.Information about the products is as follows: The company's fixed costs totaled $70,000,of which $15,000 can be directly traced to Product 1 and $40,000 can be directly traced to Product 2.The effect on the firm's profits if Product 2 is dropped would be a

Target costs equal the difference between the target selling price and the desired profit margin.

Which of the following statements regarding differential costs is (are)true? (A)The full cost fallacy occurs when a decision-maker includes fixed manufacturing overhead in the product's cost. (B)When deciding whether or not to accept a special order,a decision-maker should focus on differential costs instead of full costs.

The following information relates to a product produced by Ashland Company: Fixed selling costs are $1,000,000 per year.Variable selling costs of $4 per unit sold are added to cover the transportation cost.Although production capacity is 500,000 units per year,Ashland expects to produce only 400,000 units next year.The product normally sells for $40 each.A customer has offered to buy 60,000 units for $30 each.The customer will pay the transportation charge on the units purchased.If Ashland accepts the special order,the effect on income would be a

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 hours 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. How many units of Alpha and Beta should Clapton produce?

The operations of Gadwell Corporation are divided into the Blink Division and the Blur Division.Projections for the next year are as follows: If the Blur Division were dropped,Blink Division's sales would increase by 30%.If this happened,the operating income for Gadwell Corporation as a whole would be

Explain the differences between life-cycle product costing and target costing.

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

With constrained resources,the important measure of profitability is the contribution margin per unit of scarce resource.

NorWest Shoe Company has two retail stores,one in Albertville and the other in Bloomer.The Albertville store had sales of $100,000,a contribution margin of 35 percent,and a segment margin of $14,000.The company's two stores have total sales of $250,000,contribution margin of 32 percent,and a total segment margin of $31,000.The contribution margin for the Bloomer store must have been

The following information relates to the Jax Company for the upcoming year. The cost of goods sold includes $2,400,000 of fixed manufacturing overhead; the operating expenses include $200,000 of fixed marketing expenses.A special order offering to buy 50,000 units for $15.00 per unit has been made to Jax.Fortunately,there will be no additional operating expenses associated with the order; however,Jax is operating at full capacity.How much will operating profits increase if Jax accepts the special order?