Exam 13: Short-Run Decision Making: Relevant Costing

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Decision involving a choice between internal and external production

Acron Construction charges each customer a price equal to the cost of direct materials and direct labour plus 40%. Job 126 included the following costs: Direct materials $60,000 Direct labour $46,000 What price does the company charge for Job 126?

MacAllister Company charges cost plus 35%. Suppose the price of an item is $90. What is the item's cost?

"The accounting decision-making model is the only useful tool in real life because it only looks at the numbers." Critique this statement, and give an example for which it does not hold true.

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -When a company calculates product cost then adds the desired profit

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Limited resources and limited demand for each product

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Determines whether or not a segment should be kept or dropped

Refer to Rudder Company. Upon hearing of the analysis of the cost of making the metallic ink in-house versus buying it from an outside supplier, Joseph Michaels, the production supervisor, said, "That's nuts! This ink is a real pain to make, and $1.24 per millilitre sounds like a bargain to me!" Based on Jim's feelings, Dominique Rudder (a new CPA in the accounting office) did an ABC analysis of ink production. She came up with the same direct materials, direct labour, and variable overhead, as well as the following information on activities required by metallic ink production: Setups $ 60,000 600 setups per year Purchasing $270,000 9,000 purchase orders per year The metallic ink requires 300 purchase orders per year and 80 setups. Required: A. If Rudder purchases the ink from the outside supplier, would operating income be higher or lower, and by how much? B. What is the highest price per millilitre that Rudder would pay an outside company for the ink?

Mason Company makes portable charges for cell phones. Currently, Mason purchases 10,000 plastic housings a year from an outside company for $1 each. One of Mason engineers suggested that the company make its plastic housings in-house. Estimated unit costs are as follows: Direct materials \ 0.30 Direct labour 0.20 Variable overhead 0.15 Fixed overhead* 0.40 * Fixed overhead is $2,400 per year in equipment costs specifically traceable to the plastic housing line and $1,600 per year in general overhead costs to be allocated to this line. Required: A. If Mason makes the housing in-house, will net income be higher or lower, and by how much? B. What is the highest price per unit that Mason would pay an outside company for the housings? C. Now assume that all of the fixed overhead is allocated fixed overhead and will not be affected by making the product in-house or purchasing it. If Mason makes the housing in-house, will net income be higher or lower, and by how much?

Resources that are acquired in advance of usage are flexible resources.

Demand and supply are on opposite sides of the pricing equation.

Sherpa Company manufactures tents and sleeping bags. Tents are priced at $80, have variable costs of $55, and have direct fixed costs of $120,000. Sleeping bags are priced at $60, have variable costs of $35, and have direct fixed costs of $66,000. Common fixed costs equal $200,000. Last year, the division sold 5,000 tents and 10,000 sleeping bags. Required: A. What was the segment margin for tents last year? B. What was the segment margin for sleeping bags last year? C. What was Sherpa's operating income last year? D. If Sherpa stopped making tents, what would operating income be?

In deciding the optimal mix of products that use a constrained resource, it is important to determine the contribution margin per unit of scarce resource.

Senior Company currently buys 30,000 units of a part used to manufacture its product at $40 per unit. Recently the supplier informed Senior Company that a 20% increase will take effect next year. Senior has some additional space and could produce the units for the following per-unit costs (based on 30,000 units): Direct materials \ 16 Direct labour 12 Variable overhead 12 Fixed overhead 10 Total If the units are purchased from the supplier, $200,000 of fixed costs will continue to be incurred. In addition, the plant can be rented out for $20,000 per year if the parts are purchased externally. Required: Should Senior Company buy the part externally or make it internally?

Irrelevant costs are costs that vary across alternatives.

Travers Company sets prices equal to cost plus 55%. Recently, the company charged a customer a price of $60 for an item. What was the cost of the item?

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Products that have common processes and costs of production up to a point

Refer to Rudder Company. Required: 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?

RJB Building routinely bids on construction jobs. The company first determines the budgeted product cost of the job and then applies a markup of 45%. If a bid of $20,000 is submitted for a new job, which of the following statements applies?

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -A percentage applied to the base cost to cover other costs plus profit