Exam 11: Decision Making and Relevant Information

A product cost is composed of the following: The product sells for $40 and a 15% commission is paid to a salesperson for every unit sold. Management accountants also estimate that storage cost per unit averages $0.75 per unit. What is the full cost of the product?

One-time-only special orders should only be accepted if ________.

Sarasota Bicycles has been manufacturing its own wheels for its bikes. The company is currently operating at 100% capacity, and variable manufacturing overhead is charged to production at the rate of 30% of direct labor cost. The direct materials and direct labor cost per unit to make the wheels are $3.00 and $3.60 respectively. Normal production is 200,000 wheels per year. A supplier offers to make the wheels at a price of $8 each. If the bicycle company accepts this offer, all variable manufacturing costs will be eliminated, but the $84,000 of fixed manufacturing overhead currently being charged to the wheels will have to be absorbed by other products. Required: a.Prepare an incremental analysis for the decision to make or buy the wheels. b.Should Sarasota Bicycles buy the wheels from the outside supplier? Justify your answer.

The management accountant for the Chocolate S'more Company has prepared the following income statement for the most current year: a.Do you recommend discontinuing the Other Candy product line? Why or why not? b.If the Chocolate product line had been discontinued, corporate profits for the current year would have decreased by what amount?

When deciding to accept a one-time-only special order from a wholesaler, management should ________.

Which of the following is true of depreciation cost?

Rockford Company manufactures a part for use in its production of hats. When 10,000 items are produced, the costs per unit are: Angel Company has offered to sell to Rockford Company 10,000 units of the part for $6.00 per unit. The plant facilities could be used to manufacture another item at a savings of $9,000 if Rockford accepts the offer. In addition, $1.00 per unit of fixed manufacturing overhead on the original item would be eliminated. Required: a.What is the relevant per unit cost for the original part? b.Which alternative is best for Rockford Company? By how much?

Loft Lake Cabinets is approached by Ms. Jenny Zhang, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. The following per unit data apply for sales to regular customers: Loft Lake Cabinets has excess capacity. Ms. Zhang wants the cabinets in cherry rather than oak, so direct material costs will increase by $15 per unit. Required: a.For Loft Lake Cabinets, what is the minimum acceptable price of this one-time-only special order? b.Other than price, what other items should Loft Lake Cabinets consider before accepting this one-time-only special order? c.How would the analysis differ if there was limited capacity?

Top management faces a persistent challenge to make sure that the performance evaluation model of lower level managers is ________.

Direct materials are $600, direct labor is $450, variable overhead costs are $650, and fixed overhead costs are $400. The cost of one unit is ________.

Determining which products should be produced when the plant is operating at full capacity is referred to as a(n) ________.

When deciding whether to discontinue a segment of a business, relevant costs include ________.

Incremental revenue is the sum of differential revenues of two alternatives.

Planet Furniture, Inc. is currently producing well below its full capacity. The Swansea Company has approached Plant with an offer to buy 5,000 tools at $17.50 each. Planet sells its end table for $18.50 each; the average cost per unit is $18.30, of which $2.70 is fixed costs. If Planet accepts the order, the increase in operating income will be $7,500.

Which of the following costs always differ among future alternatives?

Relevant data in a make-or-buy decision of a part include which of the following?

Under what conditions might a manufacturing firm sell a product for less than its long-term price? Why?

Sunk costs are irrelevant to decision making.

Hartley's Meat Pies is considering replacing its existing delivery van with a new one. The new van can offer considerable savings in operating costs. Information about the existing van and the new van follow: If Hartley's Meat Pies replaces the existing delivery van with the new one, over the next 10 years operating income will ________.

A decision model involves a(n) ________.