Exam 17: Activity Resource Usage Model and Tactical Decision Making

The Titanic hit an iceberg and sank.In deciding whether or not to salvage the ship, its book value is a(n)

Information about three joint products follows: The cost of the joint process is $140,000. -Which of the joint products should be processed further?

Arcadia, Inc., uses a joint process to produce Products W, X, Y, 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 $200,000.Other relevant data are as follows: Required:

Miller Company produces speakers for home stereo units.The speakers are sold to retail stores for $30.Manufacturing and other costs are as follows: 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 Tennessee manufacturing firm has offered a one-year contract to supply speaker parts at a cost of $16.00 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 Tennessee firm?

Given the following three situations: Identify which resource category relates to each situation under the activity resource usage model and explain your choice.

Foster Industries manufactures 20,000 components per year.The manufacturing cost of the components was determined as follows: 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?

Which of the following costs is relevant to a make-or-buy decision?

A decision that focuses on whether a specially priced order should be accepted or rejected is a

Figure 17-2 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. - Refer to Figure 17-2.A wholesaler has offered to pay $110 a unit for 7,500 units. If the special order is accepted, the effect on operating income would be a

Harris 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 Harris Company unlimited quantities of part AA1 at a unit cost of $31.00.If Harris 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 Harris Company accepts the offer of the outside supplier, annual profits will

Sunk costs are

Meco Company produces a product that has a regular selling price of $360 per unit.At a typical monthly production volume of 2,000 units, the product's average unit cost of goods sold amounts to $270.Included in this average is $120,000 of fixed manufacturing costs.All selling and administrative costs are fixed and amount to $30,000 per month. Meco Company has just received a special order for 1,000 units at $240 per unit.The buyer will pay transportation, and the regular selling price will not be affected if Meco accepts the order. - Assuming Meco Company has excess capacity, the effect on profits of accepting the order would be a

The operations of Grant Corporation are divided into the Fix Division and the Roach Division.Projections for the next year are as follows: Required:

A purchasing agent has two potential firms from which to buy materials for production.If both firms charge the same price, the material cost is a(n)

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

Foster Industries manufactures 20,000 components per year.The manufacturing cost of the components was determined as follows: An outside supplier has offered to sell the component for $25.50. Foster 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 Foster purchases the component from the outside supplier?

Sound tactical decision making

Which of the following costs is NOT relevant to a decision to sell a product at split-off or process the product further and then sell the product?