Exam 9: Flexible Budgets and Overhead Analysis

A study has been conducted to determine if Product A should be dropped.Sales of the product total $200,000 per year;variable expenses total $140,000 per year.Fixed expenses charged to the product total $90,000 per year.The company estimates that $40,000 of these fixed expenses will continue even if the product is dropped.These data indicate that if Product A is dropped,the company's overall net operating income would:

A sunk cost is a cost that has already been incurred and that cannot be avoided regardless of what action is chosen.

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:

Variable costs are always relevant costs.

Assuming all units that are produced can be sold,in deciding which of alternative products to produce in circumstances of constrained resources,managers will always seek to maximize the production of the product with the highest per-unit contribution margin.

The split-off point is the stage in production of joint products at which the different end products are identified.

Cardinal Company needs 20,000 units of a certain part to use in one of its products.The following information is available: Oriole Company has offered to sell this part to Cardinal company for $36 each.If Cardinal buys the part from Oriole instead of making it,Cardinal would not have any use for the released capacity.In addition,60% of the fixed manufacturing overhead costs will continue regardless of what decision is made.Assume that direct labour is an avoidable cost in this decision.In deciding whether to make or buy the part,the total relevant costs to make the part are:

Lusk Company produces and sells 15,000 units of Product A each month.The selling price of Product A is $20 per unit,and variable expenses are $14 per unit.A study has been made concerning whether Product A should be discontinued.The study shows that $70,000 of the $100,000 in fixed expenses charged to Product A would continue even if the product were discontinued.These data indicate that if Product A is discontinued,the company's overall net operating income would:

To maximize total contribution margin,a firm faced with a production constraint should:

Lusk Company produces and sells 15,000 units of Product A each month.The selling price of Product A is $20 per unit,and variable expenses are $14 per unit.A study has been made concerning whether Product A should be discontinued.The study shows that $70,000 of the $100,000 in fixed expenses charged to Product A would continue even if the product were discontinued.These data indicate that if Product A is discontinued,the company's overall net operating income would:

In a make or buy decision,which of the costs below are relevant?

Assuming all units that are produced can be sold,in deciding which of alternative products to produce in circumstances of constrained resources,managers will always seek to maximize the production of the product with the highest per-unit contribution margin.

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:

Consider a decision facing a firm of either accepting or rejecting a special offer for one of its products.A cost that is not relevant is:

Northern Stores is a retailer in the upper Midwest.The most recent monthly income statement for Northern Stores is given below:

An avoidable cost is a cost that can be eliminated (in whole or in part)as a result of choosing one alternative over another.

Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $76.40 per unit.By how much would this special order increase (decrease)the company's net operating income for the month?

Consider the following production and cost data for two products,L and C: The company can only perform 65,000 machine set-ups each period due to limited skilled labour and there is unlimited demand for each product.What is the largest possible total contribution margin that can be realized each period?

An avoidable cost is a cost that can be eliminated (in whole or in part)as a result of choosing one alternative over another.

To maximize total contribution margin,a firm faced with a production constraint should: