Exam 8: Tactical Decision-Making and Relevant Costing

Foster Industries manufactures 20,000 components per year.The manufacturing cost of the components was determined as follows: If the component is not produced by Foster, inspection of products and provision of power costs will only be 10% of the current production costs; moving materials costs and setting up equipment costs will only be 50% of the production costs; and supervision costs will amount to only 40% of the production amount.An outside supplier has offered to sell the component for $25.50. What is the effect on income if Foster Industries purchases the component from the outside supplier?

Assume the following information for a product line: - What is the segment margin of the product line?

Pasha Company produced 50 defective units last month at a unit manufacturing cost of $30.The defective units were discovered before leaving the plant.Pasha can sell them "as is" for $20 or can rework them at a cost of $15 and sell them at the regular price of $50.Which of the following is not relevant to the sell-or-rework decision?

Target costing involves much more up-front work than cost-based pricing.

Bergamit Company manufactures veterinary products.One joint process involves refining a chemical (dactylyte) into two chemicals dac and tyl.One batch of 10,000 gallons of dactylyte can be converted to 4,000 gallons of dac and 6,000 gallons of tyl at a total joint processing cost of $15,000.At the split-off point, dac can be sold for $5 per gallon and tyl can be sold for $7 per gallon.Bergamit has just learned of a new process to convert dac into prodac.The new process costs $5,000 and yields 2,500 gallons of prodac for every 3,000 gallons of dac.Prodac sells for $6 per gallon. What is Bergamit's profit from refining one batch of dactylyte if both dac and tyl are sold at the split-off point?

Depreciation is a _____, a cost that cannot be affected by any future action.

Brorsen, Inc., has just designed a new product with a target cost of $64.Brorsen requires new product to have a profit of 20%.What is the target price for the new product?

ColorPro uses part 87A in the production of color printers.Unit manufacturing costs for part 87A are: ColorPro uses 100,000 units of 87A per year.Filbert Company has offered to sell ColorPro 100,000 units of 87A per year for $12.Fixed overhead is unavoidable. - Now suppose that ColorPro discovers that other costs will increase by $7,000 per year if the component is purchased rather than made internally.Should ColorPro make or buy the part?

The benefit sacrificed or foregone when one alternative is chosen over another is known as the ____________________.

Connolly Company produces two types of lamps, classic and fancy, with unit contribution margins of $13 and $21, respectively.Each lamp must spend time on a special machine.The firm owns four machines that together provide 18,000 hours of machine time per year.The classic lamp requires 0.20 hours of machine time, the fancy lamp requires 0.50 hours of machine time. - What is the total contribution margin of the optimal mix of classic and fancy lamps?

Tyler Company has the following information pertaining to its two product lines for last year: Common expenses are $105,000 for the year. - What is the segment margin for Product B?

When managers are considering the optimal product mix, they are most concerned with

Matching ​ Match each statement with the correct item below. -​Keep-or-drop decisions

Which of the following decisions involve a choice between internal and external production?

Walton Company manufactures a product with the following costs per unit at the expected production level of 84,000 units: The company has the capacity to produce 90,000 units.The product regularly sells for $120.A wholesaler has offered to pay $110 per unit for 7,500 units.If the special order is accepted, the effect on operating income would be a

Vest Industries manufactures 40,000 components per year.The manufacturing cost of the components was determined as follows: An outside supplier has offered to sell the component for $12.75.Fixed cost will remain the same if the component is purchased from an outside supplier. Vest Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component from the outside supplier. What is the effect on income if Vest purchases the component from the outside supplier?

Most short-run decisions require extensive consideration of ___________.

On a segmented income statement, fixed costs are broken down into direct fixed costs and common fixed costs.

Rexeleg Company manufactures a product with the following costs per unit at the expected production of 40,000 units: The company has the capacity to produce 50,000 units.The product regularly sells for $50.A wholesaler has offered to pay $43 per unit for 3,000 units. If the firm chooses to accept the special order and reject some regular sales, the effect on operating income would be a:

Nauman Company has the following information pertaining to its two divisions for last year: Common expenses are $24,000 for the year. What is the income for Nauman Company?