Exam 13: Short-Run Decision Making: Relevant Costing

Figure 13-5. Santorino Company produces two models of a component, Model K-3 and Model P-4. The unit contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14. Each model must spend time on a special machine. The firm owns two machines that together provide 4,000 hours of machine time per year. Model K-3 requires 15 minutes of machine time; Model P-4 requires 30 minutes of machine time. -Refer to Figure 13-5. Now suppose that Santorino Company can sell only 5,500 units of each model. How many units of Model P-4 should be produced?

Pasha Company produced 50 defective units last month at a unit manufacturing cost of $30. The defective units were discovered before leaving the plant. Pasha can sell them "as is" for $20 or can rework them at a cost of $15 and sell them at the regular price of $50. Which of the following is not relevant to the sell-or-rework decision?

Limited resources and limited demand for a product are generally referred to as

Figure 13-5. Santorino Company produces two models of a component, Model K-3 and Model P-4. The unit contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14. Each model must spend time on a special machine. The firm owns two machines that together provide 4,000 hours of machine time per year. Model K-3 requires 15 minutes of machine time; Model P-4 requires 30 minutes of machine time. -Refer to Figure 13-5. Now suppose that Santorino Company can sell only 5,500 units of each model. How many units of Model K-3 should be produced?

The decision on whether to produce a product internally or purchase it from a supplier is an example of a _______________.

Walton Company manufactures a product with the following costs per unit at the expected production level of 84,000 units: The company has the capacity to produce 90,000 units. The product regularly sells for $120. A wholesaler has offered to pay $110 per unit for 7,500 units. If the special order is accepted, the effect on operating income would be a

Aerotoy Company makes toy airplanes. One plane is an excellent replica of a 737; it sells for $5. Vacation Airlines wants to purchase 12,000 planes at $1.75 each to give to children flying unaccompanied. Costs per plane are as follows: No variable marketing costs would be incurred. The company is operating significantly below the maximum productive capacity. No fixed costs are avoidable. However, Vacation Airlines wants its own logo and colors on the planes. The cost of the decals is $0.01 per plane and a special machine costing $1,500 would be required to affix the decals. After the order is complete, the machine would be scrapped. Should the special order be accepted?

Linear programming is a special technique that can be used to determine the optimal product mix when there are multiple constraints.

Irrelevant costs are costs that are the same for more than one alternative.

Information about three joint products follows: The cost of the joint process is $60,000. Which of the joint products should be sold at split-off?

Which of the following is not a step in the decision-making model?

Welker Company is designing an all-in-one grill and cooler aimed at sports fans. The company believes that the product can be sold for $180; and it requires a 30% profit on new products. What is the target cost of the all-in-one grill and cooler?

MATCHING Match each statement with the correct item below. a. the difference in total cost between the alternatives in a decision b. determine whether or not a segment should be kept or dropped c. limited resources and limited demand for each product d. a specific set of procedures that produces a decision e. the point that products that have common processes and costs of production become distinguishable f. method of determining the cost of a product based on the price that customers are willing to pay g. decisions involving a choice between internal and external production h. products that have common processes and costs of production up to a point i. past costs that cannot be affected by future decisions j. a percentage applied to the base cost to cover other costs plus profit k. determine whether a specially priced order should be accepted or rejected l. determine whether it is more profitable to process a joint product further -Constraints

Manning Company uses a joint process to produce products W, X, Y, and Z. Each product may be sold at its split-off point or processed further. Additional processing costs of specific products are entirely variable. Joint processing costs for a single batch of joint products are $120,000. Other relevant data are as follows: Which products should Manning process further?

A method of determining the cost of a product or service based on the price that customers are willing to pay is called ________________.

The solution of the product mix problem in the presence of multiple constraints requires the use of

Tapeo Company has always made its electronic components that go into their GPS systems in-house. Streeter Company has offered to supply these electronic components at a price of $38 each. Tapeo uses 18,000 units of these components each year. The cost per unit of this component is as follows: Assume that 45% of Tapeo Company's fixed overhead would be eliminated if the electronic component was no longer produced in-house. Required: A. If Tapeo decided to purchase the electronic component from Streeter Company how much would its operating income increase or decrease? B. Should Tapeo continue to make the electronic component or buy it from Streeter Company?

Victor's Detailing customers would be willing to pay $57 per detail. The company requires a 40% profit on each job. The average job would cost $30. Victor's Detailing uses target-costing. What is the price they should quote a new customer?

Qualitative factors that should be considered when evaluating a make-or-buy decision are

David Company produces two types of gears, Gear A and Gear B, with unit contribution margins of $6 and $8, respectively. Each gear must spend time on a special machine. The firm owns five machines that together provide 12,000 hours of machine time per year. Gear A requires 12 minutes of machine time; Gear B requires 24 minutes of machine time.