Exam 9: Flexible Budgets and Overhead Analysis

Cook Company has two divisions-Eastern and Western.The divisions have the following revenues and expenses: The management of Cook is considering the elimination of the Eastern Division.If the Eastern Division were eliminated,the direct fixed costs associated with this division could be avoided.However,corporate costs would still be $305,000 in total.Given these data,the elimination of the Eastern Division would result in an overall company net income (loss)of:

Relay Corporation manufactures batons.Relay can manufacture 300,000 batons a year at a variable cost of $750,000 and a fixed cost of $450,000.Based on Relay's predictions for next year,240,000 batons will be sold at the regular price of $5.00 each.In addition,a special order was placed for 60,000 batons to be sold at a 40% discount off the regular price.Total fixed costs would be unaffected by this order.By what amount would the company's net operating income be increased or decreased as a result of the special order?

Which statement below is the most correct about the cost-plus approach to pricing?

If by dropping a product a firm can avoid more in fixed costs than it loses in contribution margin,then the firm is better off economically if the product is dropped.

The cost of a resource that has no alternative use in a make or buy decision problem has an opportunity cost of zero.

Assume that discontinuing Product J would result in a $30,000 increase in the contribution margin of other product lines.If Bingham chooses to discontinue Product J,then the change in net income next year due to this action will be a:

Future costs that do not differ among the alternatives are not relevant in a decision.

The manufacturing capacity of Jordan Company's facilities is 30,000 units a year.A summary of operating results for last year follows: A foreign distributor has offered to buy 15,000 units at $90 per unit next year.Jordan expects its regular sales next year to be 18,000 units.If Jordan accepts this offer and rejects some business from regular customers so as not to exceed capacity,what would be the total net operating income next year? (Assume that the total fixed costs would be the same no matter how many units are produced and sold. )

Foster Company makes 20,000 units per year of a part it uses in the products it manufactures.The unit product cost of this part is computed as follows:

Green Company produces 1,000 parts per year,which are used in the assembly of one of its products.The unit product cost of these parts is: The part can be purchased from an outside supplier at $20 per unit.If the part is purchased from the outside supplier,two thirds of the fixed manufacturing costs can be eliminated.The annual impact on the company's net operating income as a result of buying the part from the outside supplier would be:

Golden,Inc.has been manufacturing 5,000 units of Part 10541 which is used in one of its products.At this level of production,the unit product cost of Part 10541 is as follows: Brown Company has offered to sell Golden 5,000 units of Part 10541 for $19 a unit.Golden has determined that two thirds of the fixed manufacturing overhead will continue even if Part 10541 is purchased from Brown.Assume that direct labour is an avoidable cost in this decision.To determine whether to accept Brown's offer,the relevant costs to Golden of manufacturing the parts internally are:

If the new product is added next year,the increase in net income resulting from this decision would be:

Only the variable costs identified with a product are relevant in a decision concerning whether to eliminate,or to accept the product.

The sunk cost in this situation is:

Assume the company has 50 units left over from last year which have small defects and which will have to be sold at a reduced price as scrap.This would have no effect on the company's other sales.What cost is relevant as a guide for setting a minimum price on these defective units?

Existing fixed manufacturing overhead costs are not relevant in deciding whether to accept a special order.

In the target costing approach to pricing,the total cost of a product is first determined and then an expected level of mark-up is added to get the desired selling price.

Variable costs are always relevant costs.

The following standard costs pertain to a component part manufactured by Ashby Company: The company can purchase the part from an outside supplier for $25 per unit.The manufacturing overhead is 60% fixed and this fixed portion would not be affected by this decision.Assume that direct labour is an avoidable cost in this decision.What is the relevant amount of the standard cost per unit to be considered in a decision of whether to make the part internally or buy it from the external supplier?

What is the net total dollar advantage (disadvantage)of purchasing the part rather than making it?