Exam 24: Short Run Decision Analysis

The common costs shared by two or more products before they are split off are called joint costs.

Sunk costs are not relevant for decisions based on incremental analysis.

Anderson Co.makes and uses 5,000 components each year in its manufacturing operations.An outside supplier has offered to supply the components to Anderson at $66 per unit.Anderson's production costs are as follows: Direct materials \ 8 Direct labor 32 Variable overhead 12 Fixed overhead (based on normal capacity) 34 If Anderson accepts the order,$8 of fixed overhead per unit will be eliminated. What is the relevant cost to produce one unit?

The point where joint products or services become separable and identifiable is known as split-off point.

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

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?

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

Which of the following techniques is most useful for a special order decision?

Red Rock Enterprises is analyzing its sales mix to find out if it is maximizing its profits.The company produces three similar items: Alpha,Beta,and Gamma.All three of these products are made with the same equipment,and maximum productive capacity measured in machine hours is now being used.Product line statistics are as follows: Alpha Beta Gamma Current production and sales (units) 105,000 158,000 95,000 Machine hours per unit 10 5 13 Selling price per unit \ 63.00 \ 480 \ 84.00 Unit variable cost \ 33.00 \ 26.00 \ 49.00 Unit variable selling cost \ 20.00 \ 16.00 \ 19.00 Determine whether the existing sales mix is the most profitable one possible.If your answer is no,offer your suggestion to improve the sales mix.Round answers to two decimal places.

Which of the following typically would be considered an incremental cost?