Exam 13: Short-Run Decision Making: Relevant Costing

Bonder Company makes a variety of paper products.One product is printer paper,packaged 2,000 sheets to a box.One box normally sells for $30 A large bank offered to purchase 5,000 boxes at $26 per box.Costs per box are as follows: Direct materials \ 128 Direct labour 53 Variable overhead 21 Fixed overhead 65 No variable marketing costs would be incurred on the order.The company is operating significantly below the maximum production capacity.No fixed costs are avoidable.Which of the following represents the solution?

Direct materials \ 8 Direct labour 2 Variable overhead 1 Fixed overhead 4 ProPrinters uses 100,000 units of 87A per year.Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12.Fixed overhead is unavoidable. -Refer to the Figure.Assume that EBP can sell as many as 1,000 sinks and 500 tubs per year.How many tubs should EBP produce?

Information about three joint products follows: A B C Anticipated production 5,000 1,000 2,000 Selling price/kg at split-off \ 10 \ 30 \ 16 Additional processing costs/kg after split-off (all variable) \ 6 \ 12 \ 24 Selling price/kg after further processing \ 20 \ 40 \ 50 The cost of the joint process is $60,000.Which of the joint products should be sold at split-off?

The operations of Slickers Corporation are divided into the North Division and the South Division.Projections for the next year are as follows: $\begin{array}{lrrr}&\text { North } & \text { South } & \\&\text { Division } & \text { Division } & \text { Total }\\\text { Sales } & \$ 420,000 & \$ 252,000 & \$ 672,000 \\\text { Variable costs } & 147,000 & 115,500 & 262,500\\\text { Contribution margin } & \$ 273,000 & \$ 136,500 & \$ 409,500 \\\text { Direct fixed costs } & 126,000 & 105,000 & 231,000\\\text { Segment margin } & \$ 147,000 & \$ 31,500 & \$ 178,500 \\\text { Allocated common costs } & 63,000 & 47,250 & 110,250 \\\text { Operating income (loss) } & \$ 84,000 & \$(15,750) & \$ 68,250\\\end{array}$ Suppose the South Division were dropped.What would be the operating income for Slickers Corporation?

Joseph Giovine owns a successful hole-in-the-wall bagel shop called Peach Tree Bagels.Joseph wants to expand the shop by leasing the space next door for $1,000 per month and adding tables and chairs so that customers can dine in.He figures that the tables and chairs will cost $5,000 and that the bagel machine,which cost $4,500 five years ago,will have to be scrapped in favour of a larger machine costing $7,400.He thinks sales will increase by $5,500 per month.Variable costs are 55% of sales. A. What are the relevant costs and benefits of expanding into the new space? B. What are the irrelevant costs and benefits of expanding into the new space?

Canning Company uses a joint process to produce products W,X,Y,and Z.Each product may be sold at its split-off point or processed further.Additional processing costs of specific products are entirely variable.Joint processing costs for a single batch of joint products are $120,000.Other relevant data are as follows: Sales Value Additional Sales Value of Product at Split-Off Processing Costs Final Froduct W \ 40,000 \ 60,000 \ 80,000 X \ 12,000 \ 4,000 \ 20,000 Y \ 20,000 \ 32,000 \ 120,000 Z \ 28,000 \ 20,000 \ 32,000 \ 100.000 \ 116000 \ 252,000 Which of the following actions should be taken by Canning?

Refer to the Figure.Which of the following is a cost of the special order in addition to yarn and backing?

Test A Test B Test C Test D Charging rate \ 50 \ 20 \ 80 \ 70 Variable cost 10 10 60 30 Machine hours 2 1 0.5 0.25 -Refer to the Figure.What is the contribution margin per hour of machine time for Test B?

Match each statement with the correct item below. -Decision model

Direct materials \ 4.00 Direct labour 2.00 Variable overhead 1.50 Fixed overhead 3.00 -Refer to the Figure.Assume that the cost of logs falls by half.Should Donder sell the sawdust at split-off or process it further,and what is the effect on income?

Short-run decision making only involves short-run decisions that have nothing to do with the firm's overall strategy.

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

Which of the following is an important qualitative factor to consider regarding a special order?

Direct materials \ 8 Direct labour 2 Variable overhead 1 Fixed overhead 4 ProPrinters uses 100,000 units of 87A per year.Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12.Fixed overhead is unavoidable. -Refer to the Figure.What is the total contribution margin of the optimal mix of plain and fancy legs?

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

Direct materials \ 4.00 Direct labour 2.00 Variable overhead 1.50 Fixed overhead 3.00 -Refer to the Figure.Should Donder process the sawdust into particle board,and what would be the effect on income?

The Tucker Company charges cost plus 30%.What is the price of an item with cost equal to $65?

Direct materials \ 8 Direct labour 2 Variable overhead 1 Fixed overhead 4 ProPrinters uses 100,000 units of 87A per year.Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12.Fixed overhead is unavoidable. -Refer to the Figure.Suppose Alpha Company can sell only 5,500 units of each model.How many units of Model K-3 should be produced?

Gundy Company manufactures a product with the following costs per unit at the expected production of 30,000 units: Direct materials \ 4 Direct labour 12 Variable manufacturing overhead 6 Fixed manufacturing overhead 8 The company has the capacity to produce 30,000 units.The product regularly sells for $40.A wholesaler has offered to pay $32 a unit for 2,000 units. Suppose the firm chooses to accept the special order and reject some regular sales.What would be the effect on Gundy's operating income?

Direct materials \ 0.40 Direct labour 0.15 Variable overhead 0.06 Fixed overhead* 0.50 -Refer to the Figure. A. Based on the cost figures, if Rudder purchases metallic ink from the outside supplier, will operating income be higher or lower, and by how much? B. What is the highest price per millilitre that Rudder would pay an outside supplier for the ink?