Exam 9: Flexible Budgets and Overhead Analysis

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?

Gata Co.plans to discontinue a department that has a $48,000 contribution margin and $96,000 of fixed costs.Of these fixed costs,$42,000 cannot be avoided.What would be the effect of this discontinuance on Gata's overall net operating income?

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

Manor Company plans to discontinue a department that has a contribution margin of $25,000 and $50,000 in fixed costs.Of the fixed costs,$21,000 cannot be eliminated.The effect on the profit of Manor Company of discontinuing this department would be:

SP Company makes 40,000 motors to be used in the production of its sewing machines.The average cost per motor at this level of activity is: An outside supplier recently began producing a comparable motor that could be used in the sewing machine.The price offered to SP Company for this motor is $18.If SP Company decides not to make the motors,there would be no other use for the production facilities and total fixed factory overhead costs would not change.If SP Company decides to continue making the motor,how much higher or lower would net income be than if the motors are purchased from the outside suppler? Assume that direct labour is a variable cost in this company.

One of the dangers of allocating common fixed costs to a product line is that such allocations can make the line appear less profitable than it really is.

What would the annual cost of additional supervision have to be in order for Hadley to be economically indifferent between making or buying the component? (Assume all other conditions stay the same. )

A study has been conducted to determine if one of the departments in Parry Company should be discontinued.The contribution margin in the department is $50,000 per year.Fixed expenses charged to the department are $65,000 per year.It is estimated that $40,000 of these fixed expenses could be eliminated if the department is discontinued.These data indicate that if the department is discontinued,the company's overall net operating income would:

Redner,Inc.produces three products.Data concerning the selling prices and unit costs of the three products appear below:

Assume that discontinuing the manufacture and sale of Product J will not affect the sale of other products.If the company discontinues Product J,the change in annual net income due to this decision will be a:

At what selling price per unit should Immanuel be indifferent between accepting or rejecting the special offer?

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

The Lantern Corporation has 1,000 obsolete lanterns that are carried in inventory at a manufacturing cost of $20,000.If the lanterns are remachined for $5,000,they could be sold for $9,000.Alternatively,the lanterns could be sold for scrap for $1,000.Which alternative is more desirable and what are the total relevant costs for that alternative?

The opportunity cost of making a component part in a factory with no excess capacity is the:

Pitkin Company produces a part used in the manufacture of one of its products.The unit product cost of the part is $33,computed as follows: An outside supplier has offered to provide the annual requirement of 10,000 of the parts for only $27 each.The company estimates that 30% of the fixed manufacturing overhead costs above will continue if the parts are purchased from the outside supplier.Assume that direct labour is an avoidable cost in this decision.Based on these data,the per unit dollar advantage or disadvantage of purchasing the parts from the outside supplier would be:

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?

How much of the unit product cost of $59.90 is relevant in the decision of whether to make or buy the part?

Assume that discontinuing Product J would result in a $100,000 increase in the contribution margin of other product lines.How many units of Product J would have to be sold next year for the company to be as well off as if it just dropped Product J and enjoyed the increase in contribution margin from other products?

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

The book value of old equipment is not a relevant cost in an equipment replacement decision problem.