Exam 13: Short-Run Decision Making: Relevant Costing

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?

Rudder Company prints a variety of publications and coloured inserts for newspapers. Currently, Rudder produces its own ink, including a special metallic colour. India Inks has offered to supply Rudder with the 25,000 mL of metallic ink that it needs each year for $1.24 per millilitre. Rudder is interested because this is a particularly difficult ink to make. Purchasing must make special efforts to locate suppliers; the metallic component requires special handling; and, since the metallic ink uses machinery that is also used to make other colours of ink, the machinery must be cleaned very well before every batch of metallic. The accounting department supplied the following unit costs: *Fixed overhead is applied on the basis of a plant-wide rate based on direct labour hours. 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?

Which qualitative factor should NOT be considered when evaluating a make-or-buy decision?

Match each statement with the correct item below. -Special-order decision

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): 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? Direct materials \ 16 Direct labour 12 Variable overhead 12 Fixed overhead 10 Total \ 50

Roberts Company produces two types of gears,Gear A and Gear B,with unit contribution margins of $6 and $8,respectively.Each gear must spend time on a special machine.The firm owns five machines that together provide 12,000 hours of machine time per year.Gear A requires 12 minutes of machine time; Gear B requires 24 minutes of machine time.

Elegance Bath Products, Inc. (EBP) makes a variety of ceramic sinks and tubs. EBP has just developed a line of sinks and tubs made from a mixture of glass and ceramic. The sinks sell for $150 each and have variable costs of $80. The tubs sell for $600 and have variable cost of $450. The glass and ceramic sinks and tubs require the use of specialized moulding equipment. The specialized moulding equipment has 4,050 hours of capacity per year. A sink uses an average of two hours of specialized moulding equipment time; a tub uses an average of five hours of specialized moulding equipment time. -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?

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. 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?

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?

Elegance Bath Products, Inc. (EBP) makes a variety of ceramic sinks and tubs. EBP has just developed a line of sinks and tubs made from a mixture of glass and ceramic. The sinks sell for $150 each and have variable costs of $80. The tubs sell for $600 and have variable cost of $450. The glass and ceramic sinks and tubs require the use of specialized moulding equipment. The specialized moulding equipment has 4,050 hours of capacity per year. A sink uses an average of two hours of specialized moulding equipment time; a tub uses an average of five hours of specialized moulding equipment time. -Refer to the Figure.Assume that specialized moulding equipment time is the only constrained resource,and that EBP can sell as many tubs and sinks as it can produce.How many sinks should be sold?

A situation in which management tells divisions that they must reduce costs by 10% is called target costing.

Bars Manufacturing Company produces Products A1,B2,C3,and D4 through a joint process.The joint costs amount to $200,000. Suppose Product B2 is processed further.What will be the effect on profits? If Processed Further Units Sales Value Additional Sales Product Produced at Split-Off Costs Value A1 3,000 \ 10,000 \ 2,500 \ 15,000 B2 5,000 30,000 3,000 35,000 C3 4,000 20,000 4,000 25,000 D4 6,000 40,000 6,000 45,000

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

The markup includes desired profit and any costs NOT included in the base cost.

Boone Products had the following unit costs: A one-time customer has offered to buy 2,000 units at a special price of $48 per unit.Because of capacity constraints,1,000 units will need to be produced during overtime.Overtime premium is $8 per unit.Suppose the special order is accepted.How much additional profit (loss)will be generated? Direct materials \ 24 Direct labour 10 Variable factory overhead 8 Fixed factory overhead (allocated) 18

Typically in a special-order decision,a customer wants to pay less than the usual price.

Irrelevant costs are costs that vary across alternatives.

What is the term for limited resources and limited demand for a product?

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 a unit for 7,500 units.Suppose the special order is accepted.What would be the effect on Walton's operating income? Direct materials \ 12 Direct labour 36 Variable manufacturing overhead 18 Fixed manufacturing overhead 24

When determining the target price of a good,the company must first determine the target cost and the desired profit.