Exam 10: Fundamentals of Cost Management

Fine Grape produces premium wine. Its success in the industry is due to its quality, although all of its customers, wine shops and specialty grocery stores, are very cost conscious and negotiate for price cuts on all large orders. Noting that the wine industry is becoming increasingly competitive, Fine Grape is looking for a way to meet the challenge. It is negotiating with Culinary Delights, a regional specialty grocery store, to purchase a large order of wine. Fine Grape is currently producing under-capacity and would like to keep its production facilities, gaining better economies of scale by increasing production. Culinary Delights has agreed to a large order but only at a price of $39 per bottle. The special order can be produced in one batch with available capacity. Fine Grape has prepared the following data related to next month's operations (per unit, for 10,000 bottles, made in 10 batches of 1,000 each) No variable marketing costs are associated with this order, but Fine Grape has spent $2,500 during the past two months trying to get Culinary Delights to place the special order. Required: (1) How much will the special order change Fine Grape's total operating income? (2) How much would the special order change Fine Grape's total operating income if fine Grape is operating at full capacity and would lose the sale of the 2,000 bottles to regular customers? (3) How might the special order fit into Fine Grape's competitive strategy?

Express Travel decides to price delivery service according to the results of a recent activity-based costing (ABC) study. The study indicates Express Travel should charge $16 per order, 1% of annual order value for general delivery costs, $2.50 per item, and $45 for delivery. A year later, Express Travel collected the following information for three of its customers: Cost driver Customer A Customer B Customer C Number of orders 18 8 12 Number of deliveries 10 10 24 Total number of items 2,000 4,000 12,000 Annual order value \ 120,000 \ 80,000 \ 100,000 - What are the total delivery costs charged to Customer C during the year?

Quality can be defined as the degree to which a product or service performs as it was designed to do.

Water Industries' quality control report for August contains the following items: Gathering, analysis, and reporting quality data \1 ,000 Inspecting raw materials received from vendors 2,000 Testing and inspecting finished products 3,000 Visiting customer sites to test product 4,000 Designing product to reduce production problems 5,000 Repairing and/or replacing products under warranty 6,000 Maintaining the equipment used to gather quality data 7,000 Cost (net) of materials wasted during production 8,000 - What would be the total of the nonconformance costs on the August quality control report for Water Industries?