Exam 13: Short-Run Decision Making: Relevant Costing

Gordon Company produces two types of gears, Gear Q and Gear S, with unit contribution margins of $2 and $5, respectively. Each gear must spend time on a special machine. The firm owns ten machines that together provide 25,000 hours of machine time per year. Gear Q requires 0.10 hours of machine time; Gear S requires 0.4 hours of machine time.

A decision that focuses on whether a specially priced order should be accepted or rejected is what kind of decision?

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. What is the amount of machine time for model K-3 in terms of percent of a machine hour?

Figure 13-8. Kerrigan Lumber Yard receives 12,000 large trees each year that they process into rough logs. Currently, Kerrigan sells the rough logs for $75 each. Kerrigan is considering processing the logs further into refined lumber. Each log can be processed into 200 feet of refined lumber at an additional cost of $0.40 per foot. The refined lumber can be sold for $0.95 per foot. -Refer to Figure 13-8. Assume that the cost of getting the 12,000 large trees falls by half. Should Kerrigan sell the rough logs at split-off or process it further?

Target costing can be used most effectively in the design and development stage of the product life cycle.

A situation in which management tells divisions that they must reduce costs by 10% is called target costing.

Rippey Corporation manufactures a single product with the following unit costs for 5,000 units: Recently, a company approached Rippey Corporation about buying 1,000 units for $225. Currently, the models are sold to dealers for $412.50. Rippey's capacity is sufficient to produce the extra 1,000 units. No additional selling expenses would be incurred on the special order. Required:

Tyler Company has been approached by a new customer with an offer to purchase 6,000 units of its product KR200 at a price of $11 each. The existing sales would not be affected by this special order. Tyler normally produces 40,000 units but plans to produce and sell 30,000 in the coming year. The normal sales price is $18 per unit. Unit cost information is as follows: If Tyler accepts the order, no fixed manufacturing activities will be affected because there is sufficient excess capacity.

Segmented reports are helpful for managers to make _______________ decisions.

Salley Company makes pagers. Currently, Salley purchases 10,000 plastic housings per year from an outside company for $1 each. One of Salley's engineers suggested that the company make its plastic housings in-house. Estimated unit costs are as follows: * Fixed overhead is $2,400 per year in equipment costs specifically traceable to the plastic housing line and $1,600 per year in general overhead costs to be allocated to this line