Exam 17: Activity Resource Usage Model and Tactical Decision Making

What are relevant costs? How do they relate to decision making?

San Antonio Corporation manufacturers a part for its production cycle. The costs per unit for 5,000 units of this part are as follows: Amarillo Company has offered to sell San Antonio Corporation 5,000 units of the part for $112 per unit. If San Antonio Corporation accepts Amarillo Company's offer, total fixed costs will be reduced to $60,000. What alternative is more desirable and by what amount is it more desirable?

Which item is NOT an example of a sunk cost?

The following three situations are given for Gioulis Architects: Identify which resource category relates to each situation under the activity resource usage model and explain your choice.

Figure 17-2 Wannabee 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. Refer to Figure 17-2. If a wholesaler offered to buy 4,500 units for $100 each, the effect of the special order on income would be a

Menagerie Products had the following unit costs: A one-time customer has offered to buy 900 units at a special price of $47 per unit. Assuming that sufficient unused production capacity exists to produce the order and no regular customers will be affected by the order, how much additional profit (loss) will be generated from the special order?

Composite Company uses 5,000 units of part AA1 each year. The cost of manufacturing one unit of part AA1 at this volume is as follows: An outside supplier has offered to sell Composite Company unlimited quantities of part AA1 at a unit cost of $32.00. If Composite Company accepts this offer, it can eliminate 50 percent of the fixed costs assigned to part AA1. Furthermore, the space devoted to the manufacture of part AA1 would be rented to another company for $24,000 per year. If Composite Company accepts the offer of the outside supplier, annual profits will

A decision to make or eliminate an unprofitable product is a

The following information relates to a product produced by Malkovich Company: 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. If the firm produces the special order, the effect on income would be a

Mystical Corporation manufactures a single product with the following unit costs for 5,000 units: Recently, a company approached Mystical Corporation about buying 1,000 units for $225. Currently, the models are sold to dealers for $412.50. Mystical's capacity is sufficient to produce the extra 1,000 units. No additional selling expenses would be incurred on the special order. Required:

Davidian 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: Which products should Davidian process further?

Figure 17-1 The following data pertains to the Montrose Company's three products: Refer to Figure 17-1. The product margin for product M using functional-based costing would be

Hobart Company produces speakers for PA systems. The speakers are sold to retail music stores for $30. Manufacturing and other costs are as follows: The variable distribution costs are for transportation to the retail music stores. The current production and sales volume is 20,000 per year. Capacity is 25,000 units per year. A Memphis manufacturing firm has offered a one-year contract to supply speaker parts at a cost of $6.00 per unit. If Hobart Company accepts the offer, it will be able to reduce variable costs by 30 percent and 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 Hobart Company buys from the Memphis firm?

Which of the following is NOT a way that companies might reduce tariffs?

Zildjian Corporation manufactures a single product with the following unit costs for 1,250 units: Recently, a company approached Zildjian Corporation about buying 100 units for $5,100 each. Currently, the models are sold to dealers for $7,900. Assume there is additional capacity for 60 more units and the firm has to reduce regular customer sales by 40 units in order to contract the special order. There are selling expenses on only the sales to the regular customers. What is the net income if the special order of 100 units is accepted?

Qualitative factors that should be considered when evaluating a make-or-buy decision are

Tactical cost analysis uses cost data to identify the choice that will bring the organization the most benefit.

Which of the following items would be classified as committed resources (long-term)?

Information about three joint products follows: The cost of the joint process is $140,000. Assuming all of the sell now or process further decisions were correctly made, what will be the firm's income?

The management of Villanueva Industries has been evaluating whether the company should continue manufacturing a component or buy it from an outside supplier. A $100 cost per component was determined as follows: Villanueva Industries uses 4,000 components per year. After Splendor, Inc., submitted a bid of $80 per component, some members of management felt they could reduce costs by buying from outside and discontinuing production of the component. If the component is obtained from Splendor, Inc., Villanueva's unused production facilities could be leased to another company for $50,000 per year. Required: