Exam 13: Short-Run Decision Making: Relevant Costing

Classify Company has a product that its sales department believes can be sold for $40 each.Classify requires that all new products yield 20% profit.What is the target cost of the new product?

Match each statement with the correct item below. -Differential cost

Match each statement with the correct item below. -Cost-based pricing

Refer to the Figure.Assume Victor's Detailing uses target costing to set price on each job.The company requires a 40% profit on each job.What price should Victor's Detailing quote to a new customer?

Information about three joint products follows: A B C Anticipated production 12,000 8,000 7,000 Selling price/kg at split-off \ 16 \ 26 \ 48 Additional processing costs/kg after split-off (all variable) \ 8 \ 20 \ 20 Selling price/kg after further processing \ 20 \ 40 \ 70 The cost of the joint process is $140,000.Which of the joint products should be processed further?

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 unit of machine time for Test D?

Auden makes three types of vitamin supplements,all of which require the use of encapsulating machines that have a capacity of 10,000 hours.Information on the three types (per case)is as follows: Basic Vita-Stress Antioxidant+ Selling price \ 100 \ 125 \ 160 Variable cost 50 70 90 Machine hours 0.4 0.50 0.8 A. What is the contribution margin per case for each type? B. What is the contribution margin per hour of machine time for each type? Based on your analysis in requirement B, if the company can sell all that it can make of C. all of the products, how many of each type should be sold to maximize total contribution margin?

The following information relates to a product produced by Creamer Company: Direct materials \ 24 Direct labour 15 Variable overhead 30 Fined overhead 18 Unit cost \ 87 Fixed selling costs are $500,000 per year,and variable selling costs are $12 per unit sold.Although production capacity is 600,000 units per year,the company expects to produce only 400,000 units next year.The product normally sells for $120 each.A customer has offered to buy 60,000 units for $90 each. Suppose the firm produces the special order.What would be the effect on Creamer's annual income?

Aerotoy Company makes toy airplanes.One plane is an excellent replica of a 737,which sells for $5.Vacation Airlines wants to purchase 12,000 planes at $1.75 each to give to children who are flying unaccompanied.Costs per plane are as follows: Direct materials \ 1.00 Direct labour 0.50 Variable overhead 0.10 Fixed overhead 0.90 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 colours 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.Which of the following represents the solution?

Gibb,Inc.has just designed a new product with a target cost of $54.Gibb requires new products to have a profit of 25%.What is the target price for the new product?

What is the decision called when a manager must decide whether to produce a part or to purchase it from an external supplier?

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 contribution margin per unit of scarce resource (machine time)for Model K-3?

Miller Company produces speakers for home stereo units.The speakers are sold to retail stores for $30.Manufacturing and other costs are as follows: Variable costs per unit: Fixed costs per month: Direct materials \ 9.00 Factory overhead \ 120,000 Direct labour 4.50 Selling and administrative 60,000 Factory overhead 3.00 Total \ 180,000 Distribution 1.50 Total \ 18.00 The variable distribution costs are for transportation to the retail stores.The current production and sales volume is 20,000 per year.Capacity is 25,000 units per year. A manufacturing firm has offered a one-year contract to supply speaker parts at a cost of $17.00 per unit.If Miller Company accepts the offer,it will be able to rent unused space to an outside firm for $18,000 per year.All other information remains the same as the original data.What is the effect on profits if Miller Company buys from the firm?

Berkman Company is considering the purchase of new equipment to replace one-year-old equipment that is not achieving the expected results.The following information is available: Expected maintenance costs of new machine \ 13,000 per year Purchase price of existing machine \ 160,000 Expected cost savings of new machine \ 30,000 per year Expected maintenance costs of exi sting machine \ 8,000 per year Resale value of existing machine \ 45,000 Which of these items is NOT relevant to this decision?

Walton Company manufactures a product with the following costs per unit at the expected production level of 84,000 units: Direct materials \ 12 Direct labour 36 Variable manufacturing overhead 18 Fixed manufacturing overhead 24 The company has the capacity to produce 90,000 units.The product regularly sells for $120.A wholesaler has offered to pay $110 a unit for 7,500 units.Suppose the special order is accepted.What would be the effect on Walton's operating income?

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

The following information pertains to Erickson Company's three products: $\begin{array}{rrrr} & \text { A } & \text { B } & C \\\text { Unit sales per year } & 250 & 400 & 250\\\text { Selling price per unit } & \$ 9.00 & \$ 12.00 & \$ 9.00 \\\text { Variable costs per unit } & 3.60 & 9.00 & 9.90\\\text { Unit contribution margin } &\$ 5.40&\$ 3.00&\$(0.90)\\\text { Contribution margin ratio }&60\%&25\%&(10)\%\end{array}$ Assume that product C is discontinued and the extra space is rented for $300 per month.All other information remains the same as the original data.What would be the effect on annual profits?

Demand and supply are on one side of the pricing equation.

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 P-4 should be produced?

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 contribution margin per hour of specialized moulding time for tubs?