Exam 6: Relevant Information and Decision Making: Operational Decisions

The strategic use of outside resources to perform activities traditionally handled by internal staff and resources

Opportunity costs need to be considered when deciding on the use of limited resources.

Undertaker Corporation has a joint process that produces three products: P, G, and A.Each product may be sold at split-off or processed further and then sold.Joint processing costs for a year amount to $25,000.Other relevant data are as follows: Separable Processing Sales Value Costs after Sales Value Product at Split-off Split-off at Completion \ 62,000 \ 5,000 \ 88,000 12,500 6,500 19,000 9,400 5,000 12,000 Product G _____.

Zachary Company produces and sells a product that has variable costs of $7 per unit and fixed costs of $200,000 per year._____ is the cost per unit if 40,000 units per year are produced and sold.

_____ costs are costs of manufacturing two or more products that are not separately identifiable as individual products until their split?off point.

Opportunity costs and outlay costs are widely used synonyms.

Watson Corporation manufactures two products, XX and YY.The following information was gathered: XX YY Selling price per unit \ 47.00 \ 26.00 Variable cost per unit 42.00 22.00 Total fixed costs \1 8,000 Assume Watson Corporation could produce and sell any mix of product XX and YY at full capacity.If product XX takes 50% longer to manufacture as product YY and only 120,000 hours of plant capacity are available, it is best for Watson to produce _____.

Bert Company is considering replacing a machine that is presently used in the production of its product.The following data are available: Old Machine Replacement Machine Original cost \ 57,000 \ 35,000 Useful life in years 17 5 Current age in years 12 0 Book value \ 39,000 - Disposal value now \ 8,000 - Disposal value in 5 years 0 0 Annual cash operating costs \ 7,000 \ 4,000 The difference in cost between keeping the old machine and replacing the old machine, ignoring income taxes, is _____the old machine.

Strawberry Company produces three products using a joint process that accumulates $25,000 in joint costs.The products, A, B, and C, can be sold at split?off or processed further and then sold.The production level for each product is 10,000 units.The following unit information is also available: Separable Processing Sales Value Costs after Sales Value Product at Split-off Split-off at Completion \ 12 \ 9 \ 21 10 4 17 15 6 19 Product C should be processed beyond the split-off point because _____.

Somalia Corporation has a joint process that produces three products: X, Y, and Z.Each product may be sold at split-off or processed further and then sold.Joint-processing costs for a year amount to $100,000.Other relevant data are as follows: Separable Processing Sales Value Costs after Sales Value Product at Split-off Split-off at Completion \ 128,000 \ 16,000 \ 160,000 50,000 26,000 76,000 25,600 20,000 40,000 In processing Product Z further _____.

Fird Company manufactures a part for its production cycle.The costs per unit for 10,000 units of this part are as follows: Direct materials \ 20 Directlabor 15 Variable factory overhead 16 Fixed factory overhead 15 Total costs \ 66 The fixed factory overhead costs are unavoidable.Assuming no other use of their facilities, the highest price that Fird Company should be willing to pay for the part is _____.

Goldwater Company manufactures a part for its production cycle.The costs per unit for 10,000 units of this part are as follows: Direct materials \ 20 Directlabor 15 Variable factory overhead 16 Fixed factory overhead 10 Total costs \ 61 The fixed factory overhead costs are unavoidable.Assume that Goldwater Company can buy 10,000 units of the part from another producer for $56 each.The current facilities could be used to make 10,000 units of a product that has a contribution margin of $20 per unit.No additional fixed costs would be incurred.Goldwater Company should _____.

Crispy Company manufactures a part for its production cycle.The costs per unit for 5,000 units of this part are as follows: Direct materials \3 Directlabor 5 Variable factory overhead 4 Fixed factory overhead 2 Total costs \1 4 The fixed factory overhead costs are unavoidable.Assume that Crispy Company has been offered 5,000 units of the part from another producer for $15 each.The facilities currently used to make the part could be rented out to another manufacturer for $20,000 a year.Crispy Company should _____.

Mickleson Company produces a part that is used in the manufacture of one of its products.The costs associated with the production of 5,000 units of this part are as follows: Direct materials \ 108,000 Direct labor 156,000 Variable factory overhead 72,000 Fixed factory overhead 168,000 Total costs \ 504,000 Of the fixed factory overhead costs, $72,000 is avoidable.Assume that Mickleson Company can buy 5,000 units of the part from another producer for $100.80 each.The current facilities could be used to make 5,000 units of a product that has a contribution margin of $24 per unit.Fixed factory overhead costs to produce this new product would be the same as for the currently produced part.Mickleson Company should _____.

Past costs may affect future payments for income taxes.

Joshua Company produces and sells a product that has variable costs of $7 per unit and fixed costs of $200,000 per year.If production increases from 20,000 units to 25,000 units, the unit cost will _____.

Unavoidable costs are never relevant in deciding whether to eliminate a product or department.

Clinton Company manufactures a part for its production cycle.The costs per unit for 10,000 units of this part are as follows: Direct materials \ 20 Directlabor 15 Variable factory overhead 16 Fixed factory overhead 10 Total costs \ 61 The fixed factory overhead costs are unavoidable.Wilson Company has offered to sell 10,000 units of the same part to Clinton Company for $55 a unit.Assuming no other use for the facilities, Clinton Company should _____.

_____ costs will not continue if an ongoing operation is changed or deleted.

Depreciation is _____.