Exam 9: Flexible Budgets and Overhead Analysis

How much will the company's net operating income be increased or (decreased)if it prices the 1,000 units in the special order at $6 each?

If Immanuel accepts this special order,the change in the monthly net operating income will be a:

When Mr.Ding L.Berry,president and chief executive of Berry,Inc. ,first saw the segmented income statement below,he flew into his usual rage: "When will we ever start showing a real profit? I'm starting immediate steps to eliminate those two unprofitable lines!"

Which of the following best describes relevant cost?

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?

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:

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?

If Varone can expect to sell 32,000 Homs next year through regular channels,at what special order price from Fairview should Varone be economically indifferent between either accepting or not accepting this special order:

How many minutes of milling machine time would be required to satisfy demand for all four products?

Jimbob Co.is considering replacing its existing fleet of trucks with new trucks.Estimates for the next three years are as follows:

Glocker Company makes three products in a single facility.These products have the following unit product costs:

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.

Managers will always seek to eliminate all unprofitable product lines.

Up to how much should the company be willing to pay for one additional hour of milling machine time if the company has made the best use of the existing milling machine capacity? (Round off to the nearest whole cent. )

Managers should pay little attention to bottleneck operations since they have limited capacity for producing output.

Manor Company plans to discontinue a department that has a contribution margin of $24,000 and $48,000 in fixed costs.Of the fixed costs,$21,000 cannot be avoided.The effect of this discontinuance on Manor's overall net operating income would be a(an):

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:

If Varone can expect to sell 32,000 Homs next year through regular channels and the special order is accepted at 15% off the regular selling price,the effect on net operating income next year due to accepting this order would be a:

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.

In deciding the profitability of processing joint products further after the split-off point,all costs should be considered including joint costs incurred prior to the split-off point.