Exam 13: Short-Run Decision Making: Relevant Costing

In deciding the optimal mix of products that use a constrained resource, it is important to determine the contribution margin per unit of scarce resource.

Refer to Figure 13-9. What is the contribution margin per hour of machine time for Test A?

Meco Company produces a product that has a regular selling price of $360 per unit. At a typical monthly production volume of 2,000 units, the product's average unit cost of goods sold amounts to $270. Included in this average is $120,000 of fixed manufacturing costs. All selling and administrative costs are fixed and amount to $30,000 per month. Meco Company has just received a special order for 1,000 units at $240 per unit. The buyer will pay transportation, and the regular selling price will not be affected if Meco accepts the order. Assuming Meco Company has excess capacity, the effect on profits of accepting the order would be

Match each statement with the correct item below. -Split-off point

Refer to Figure 13-5. Now suppose that Santorino Company can sell only 5,500 units of each model. How many units of Model P-4 should be produced?

If a future cost is the same for more than one alternative, and it has no effect on the decision is known as a(n) _____________ cost.

Refer to Figure 13-10. Upon hearing of the analysis of the cost of making the metallic ink in-house versus buying it from an outside supplier, Jim Webb, the production supervisor said "That's nuts! This ink is a real pain to make and $1.24 per ounce sounds like a bargain to me!" Based on Jim's feelings, Anna Ruiz (a new CMA in the accounting office) did an ABC analysis of ink production. She came up with the same direct materials, direct labor and variable overhead, as well as the following information on activities required by metallic ink production. The metallic ink requires 300 purchase orders per year and 80 setups.

Aerotoy Company makes toy airplanes. One plane is an excellent replica of a 737; it sells for $5. Vacation Airlines wants to purchase 12,000 planes at $1.75 each to give to children flying unaccompanied. Costs per plane are as follows: No variable marketing costs would be incurred. The company is operating significantly below the maximum productive capacity. No fixed costs are avoidable. However, Vacation Airlines wants its own logo and colors on the planes. The cost of the decals is $0.01 per plane and a special machine costing $1,500 would be required to affix the decals. After the order is complete, the machine would be scrapped. Should the special order be accepted?

Target costing can be used most effectively in the design and development stage of the product life cycle.

Refer to Figure 13-3. What is the contribution margin per hour of specialized molding equipment time for sinks?

Stadium Company charges cost plus 60%. If the price of an item is $260, what is the item's cost?

Tapeo Company has always made its electronic components that go into their GPS systems in-house. Streeter Company has offered to supply these electronic components at a price of $38 each. Tapeo uses 18,000 units of these components each year. The cost per unit of this component is as follows: Assume that 45% of Tapeo Company's fixed overhead would be eliminated if the electronic component was no longer produced in-house. Required: A. If Tapeo decided to purchase the electronic component from Streeter Company how much would its operating income increase or decrease? B. Should Tapeo continue to make the electronic component or buy it from Streeter Company?

Match each statement with the correct item below. -Markup

Refer to Figure 13-3. What is the contribution margin per hour of specialized molding time for tubs?

Reggie Corporation manufactures a single product with the following unit costs for 1,000 units: Recently, a company approached Reggie Corporation about buying 100 units for $5,100 each. Currently, the models are sold to dealers for $7,800. Reggie Corporation's capacity is sufficient to produce the extra 100 units. No additional selling expenses would be incurred on the special order. How much will income change if the special order is accepted?

The decision on whether to produce a product internally or purchase it from a supplier is an example of a _______________.

Auden makes three types of vitamin supplements, all of which require the use of encapsulating machines that have capacity of 10,000 hours. Information on the three types (per case) follows:

In keep-or-drop decisions, both the segment's contribution margin and its segment margin are useful in evaluating the performance of the segment.

Wilson Custom Cabinetry makes cabinets to order and prices the completed jobs at product cost plus 40%. Recently, Wilson finished a job and billed the customer $560. If direct materials for the job cost $130, and direct labor cost $180, what was the applied overhead for the job?

Veblen Company manufactures a variety of athletic shoes: basketball, running, and tennis. Sales of the tennis shoes have fallen off. Veblen is considering several options: 1) drop the tennis shoe line; 2) replace the tennis shoe line with golf shoes; 3) retool the tennis shoe line to make "Airtennies." Price and cost data are as follows: If the tennis shoe line is dropped, the $50,000 fixed cost is totally avoidable.