Exam 13: Short-Run Decision Making: Relevant Costing

________________ refers to the relative amount of each product manufactured by a company.

When managers are considering the optimal product mix, they are most concerned with

A decision involving a choice between internal and external production is what kind of decision?

A _________________ can be used to structure the decision maker's thinking and to organize the information to make a good decision.

Irrelevant costs are costs that are the same for more than one alternative.

At split-off, the joint costs of production for joint products are not relevant to the sell-or-process-further decision.

Resources that can be purchased in the amount needed and at the time of use are

Classy Carry manufactures two types of handbags, the Clutch and the Tote, with unit contribution margins of $9 and $15, respectively. Regardless of the type, each handbag must go through a stitching machine. The company owns 4 stitching machines and each provides 3,000 hours of machine time per year. Each Clutch handbag requires 12 minutes of machine time and each Tote handbag requires 30 minutes of machine time. There are no other constraints.

In making a short-run decision, all alternatives need to be considered.

If Fuller accepts the special order, by how much will operating income increase or decrease?

______________ is the point at which products become distinguishable after passing through a common process.

Refer to Figure 13-5. What is the contribution margin per unit of scarce resource (machine time) for Model K-3?

Foster Industries manufactures 20,000 components per year. The manufacturing cost of the components was determined as follows: If the component is not produced by Foster, inspection of products and provision of power costs will only be 10% of the current production costs; moving materials costs and setting up equipment costs will only be 50% of the production costs; and supervision costs will amount to only 40% of the production amount. An outside supplier has offered to sell the component for $25.50. What is the effect on income if Foster Industries purchases the component from the outside supplier?

Victor's Detailing customers would be willing to pay $57 per detail. The company requires a 40% profit on each job. The average job would cost $30. Victor's Detailing uses target-costing. What is the price they should quote a new customer?

Refer to Figure 13-4. What is the total contribution margin of the optimal mix of classic and fancy lamps?

Island Princess Pineapples purchases pineapples from area farmers and processes them into rings, juice, and skins. The cost of the pineapples is a joint cost, as is the initial processing in which the fruits are skinned, cored, and sliced into rings. At the split-off point, Island Princess sells the skins (for fertilizer). Juice and rings are processed further (further processing costs occurs for cooking and canning). Data for the three products follows:

The managers of Computer World are trying to determine the best method of deciding the price of their new ultra minicomputer. This computer will present the customers with several unique features that their other computers do not offer. They have asked you to explain the advantages and disadvantages of the two costing methods they are considering; markup costing and target costing.

In short-run decision making, the alternative with the lowest overall cost is always chosen.

Gordon Company produces two types of gears, Gear Q and Gear S, with unit contribution margins of $2 and $5, respectively. Each gear must spend time on a special machine. The firm owns ten machines that together provide 25,000 hours of machine time per year. Gear Q requires 0.10 hours of machine time; Gear S requires 0.4 hours of machine time.

In order to be classified as a _________________, a cost must possess two characteristics, that they are future costs and they differ across alternatives.