Exam 3: Using Costs in Decision Making

Marine Industrial Coatings, Inc. is considering replacing its existing computer system with a new computer system. The new system can offer considerable savings in computer processing and inventory management costs. Information about the existing system and the new system follow: -Sunk costs include:

The following annual information is for Bressler Corporation: Total fixed costs: $100,000 -If the sales mix consists of two units of Product X and one unit of Product Y,what is the weighted revenue per unit of composite product?

In markets where the organization faces a market-determined price,the organization can set its price using cost plus pricing.

Sunk costs are always irrelevant costs for decision making.

Yurus Manufacturing Company produces two products,X and Y.The following information is presented for both products: Total fixed costs $234,000 Required: Assume the sales mix is 3 units of X for every unit of Y: a.What is the weighted revenue per unit of composite average product,the weighted average variable cost,and the weighted contribution margin per unit of composite average product? b.What is the break-even point in units of both X and Y?

Opportunity costs are implicit costs.

Fair Engineering Company manufactures part QE767 used in several of its engine models. Monthly production costs for 10,000 units are as follows: It is estimated that 20% of the fixed support costs assigned to part QE767 will no longer be incurred if the company purchases the part from the outside supplier. Fair Engineering Company has the option of purchasing the part from an outside supplier at $16 per unit. -If Fair Engineering Company purchases 10,000 QE767 parts from the outside supplier per month,then its monthly operating income will:

Costs that cannot be changed by any decision made now or in the future are:

When there is excess capacity,it makes sense to accept a one-time-only special order for less than the current selling price when:

Marine Industrial Coatings, Inc. is considering replacing its existing computer system with a new computer system. The new system can offer considerable savings in computer processing and inventory management costs. Information about the existing system and the new system follow: -Should Marine Industrial Coatings replace the existing computer system with the new system? What are the cash flow savings or additional cost over the 5 years? Ignore income taxes.

EJL Herbal Remedies sells several products for an average price of $17 per unit. Average variable costs per unit are as follows: EJL's annual fixed costs total $82,500. -The number of units that EJL must sell each year to break even is:

When deciding to purchase a new cutting machine or continue using the old machine,the following costs are all relevant EXCEPT the:

Which of the following minimize the risks of outsourcing the production of a part?

Marine Industrial Coatings, Inc. is considering replacing its existing computer system with a new computer system. The new system can offer considerable savings in computer processing and inventory management costs. Information about the existing system and the new system follow: -Relevant costs for this decision include:

The theory of constraints:

In determining whether to keep or drop a product line,avoidable fixed costs are relevant to the decision.

Jim's 5-year-old Hyundai Elantra requires repairs estimated at $3,000 to make it roadworthy again. His friend, Julie, suggested that he should buy a 5-year-old used Honda Civic instead for $3,000 cash. Julie estimated the following costs for the two cars: -The cost(s)NOT relevant for this decision is(are):

Describe a variable cost.Describe a fixed cost.Explain why the distinction between variable and fixed costs is important in management accounting.

For one-time-only special orders,variable costs may be relevant but not fixed costs.

Fair Engineering Company manufactures part QE767 used in several of its engine models. Monthly production costs for 10,000 units are as follows: It is estimated that 20% of the fixed support costs assigned to part QE767 will no longer be incurred if the company purchases the part from the outside supplier. Fair Engineering Company has the option of purchasing the part from an outside supplier at $16 per unit. -If Fair Engineering Company accepts the offer from the outside supplier,the monthly avoidable costs (costs that will no longer be incurred)total: