Exam 24: Short Run Decision Analysis

Segment profitability analysis includes the preparation of a segmented income statement.

The costs incurred beyond the split-off point are called

Contribution margin information is not relevant for

Candidates for outsourcing would include

California Chemical Co.produces several chemical compounds.Each compound can be sold at the split-off point or processed further.The following results apply to May: Compound Sales Value at Costs of Additional Sales Value After Split-off Point Processing Additional Processing Chem I \ 59,600 \ 7,300 \ 74,400 Chem II 70,700 17,500 82,600 Chem III 46,700 6,200 55,500 After determining which products should be sold at the split-off point and which should be processed further,the total revenue provided by these three products would be

It is not possible for a company to provide the full variety of products or services which the customer demands within a given time.

Products Uno,Dos,Tres,and Quatro have contribution margins of $2,$3,$4,and $5,respectively,and require 1.5,2,2.5,and 3 machine hours per unit,respectively.Assuming that all units produced could be sold and that total machine hours per month are limited,on which product should the company concentrate its efforts?

The Norran Company needs 15,000 units of a certain part to use in its production cycle.If Norran buys the part from Waterloo Company instead of making it,Norran could not use the released facilities in another activity; thus,all of the fixed overhead applied will continue regardless of what decision is made.Accounting records provide the following data: Cost to Norran to make the part: Direct materials,$3 Direct labor,$12 Variable overhead,$13 Fixed overhead applied,$8 Cost to buy the part from the Waterloo Company,$27 What should Norran's decision be,and what is the total cost savings that would result?

A sell or process-further decision is a decision about whether to sell a joint product at the split-off point or sell it after further processing.

Avoidable costs are the direct variable costs and direct fixed costs traceable to the segments.

The point at which products are separated in a joint production process is the

The objective of a sales mix decision is to select the alternative that maximizes the contribution margin per constrained resource.

While performing an incremental analysis for outsourcing decision,information such as depreciation and other fixed costs are not relevant.

Taylor manufactures 12,000 units of a part used in its production to manufacture guitars.The annual production activities related to this part are as follows: Direct materials,$24,000 Direct labor,$60,000 Variable overhead,$54,000 Fixed overhead,$84,000 Best Guitars,Inc.,has offered to sell 12,000 units of the same part to Taylor for $22 per unit.If Taylor were to accept the offer,some of the facilities presently used to manufacture the part could be rented to a third party at an annual rental of $18,000.Moreover,$4 per unit of the fixed overhead applied to the part would be totally eliminated. What should Taylor's decision be,and what is the total cost savings that would result?

An old machine that originally cost $9,500 thus far has accumulated depreciation of $1,900.The remaining useful life is four years,with no salvage value at the end of its useful life.A new machine is now available that costs $8,500,with a useful life of five years and no residual value.The old machine could be sold now for $5,900.The annual cash operating costs for the old machine are $5,000,but for the new machine they would be only $2,500.Gross revenue from the products would be $12,000 annually for either machine.The company should

A special order should be accepted only if it maximizes operating income.

Fixed costs are irrelevant in make-or-buy decisions.

Sunk costs can be recovered and are relevant in short-run decision making.

Products Green,Red,and White have unit contribution margins of $6.50,$12,and $10,respectively,and require 2,4,and 3 direct labor hours per unit,respectively.If demand currently is far exceeding supply,on which product should the company concentrate its efforts?

On November 25,20xx,Marquez Golf Co.received a special order for 5,000 three-wood golf club sets.These golf clubs will be marketed in Japan.Ito Imports,Inc.,the purchasing company,wants the clubs bulk packaged and is willing to pay $55 per set for the clubs.The president of Marquez Golf Co.has gathered the following product costing information about the set of woods being discussed: direct materials (wood),$600 per 100 sets; direct materials (metal shafts),$1,000 per 100 sets; and direct materials (grips),$150 per 100 sets.Direct labor is $20 per set.Variable manufacturing costs are $12 per set,and fixed manufacturing costs are 20 percent of direct labor dollars.Variable selling expenses are $10 per set,and variable shipping costs are $7 per set.Fixed general and administrative costs are figured at 30 percent of direct labor dollars.Bulk shipping costs will total $11,000,thus eliminating both variable selling and variable shipping costs from consideration.The company did not expect this order and will reach planned production capacity for the year.However,there is enough plant capacity for the special order.Round answers to two decimal places. a. Prepare an analysis for the president to use in deciding whether to accept or reject the offer by Ito Imports, Inc. What decision should be made? b. What is the lowest possible price Marquez Golf Co. could charge per set of woods and still make a $9,000 profit on this order?