TB Which of the following costs are always rele...

Transcription

1 1459. TB Which of the following costs are always rele... Which of the following costs are always relevant in decision making? Variable costs. Avoidable costs. Sunk costs. Fixed costs. TB Which of the following costs are always rele TB Consider a decision facing a firm of either accept... Consider a decision facing a firm of either accepting or rejecting a special offer for one of its products. Which of the following costs is NOT relevant? Direct materials. Variable overhead. Fixed overhead that will be avoided if the special offer is accepted. Common fixed overhead that will continue if the special offer is NOT accepted. TB Consider a decision facing a firm of either accept TB What should a firm faced with a production constra... What should a firm faced with a production constraint do to maximize total contribution margin? Promote those products having the highest unit contribution margins. Promote those products having the highest contribution margin ratios. Promote those products having the highest contribution margin per unit of constrained resource. Promote those products having the highest contribution margins and contribution margin ratios. TB What should a firm faced with a production constra...

2 1462. TB Which of the following best describes a plant oper... Which of the following best describes a plant operating at capacity? Every machine and person in the plant is working at the maximum possible rate. Only some specific machines or processes are operating at the maximum rate possible. Fixed costs will need to change to accommodate increased demand. Managers should produce those products with the highest contribution margin in order to deal with the constrained resource. TB Which of the following best describes a plant oper TB Which of the following is NOT an effective way of... Which of the following is NOT an effective way of dealing with a production constraint (i.e., bottleneck)? Reduce the number of defective units produced at the bottleneck. Pay overtime to workers assigned to the bottleneck. Pay overtime to workers assigned to workstations located after the bottleneck in the production process. Subcontract work that would otherwise require use of the bottleneck. TB Which of the following is NOT an effective way of TB What is the opportunity cost of making a component... What is the opportunity cost of making a component part in a factory with no excess capacity? Variable manufacturing cost of the component. Fixed manufacturing cost of the component. Cost of the production given up in order to manufacture the component. Net benefit foregone from the alternative use of the capacity required. TB What is the opportunity cost of making a component...

3 1465. TB What is a joint product? What is a joint product? Any product that consists of several parts. Any product produced by a firm with more than one product line. Any product involved in a make or buy decision. One of several products produced from a common input. TB What is a joint product? TB Consider the following statements:i. A vertically... Consider the following statements: I. A vertically integrated firm is more dependent on its suppliers than a firm that is NOT vertically integrated. II. Many firms feel they can control quality better by making their own parts. III. A vertically integrated firm realizes profits from the parts it is "making" instead of "buying" as well as profits from its regular operations. Which of the above statements represent advantages to a firm that is vertically integrated? I only. III only. I and II only. II and III only. TB Consider the following statements:i. A vertically TB The Lantern Corporation has 1,000 obsolete lantern... The Lantern Corporation has 1,000 obsolete lanterns that are carried in inventory at a manufacturing cost of $20,000. If the lanterns are re-machined for $5,000, they could be sold for $9,000. Alternatively, the lanterns could be sold for scrap for $1,000. Which alternative is more desirable, and what are the total relevant costs for that alternative? Re-machine and $5,000. Re-machine and $25,000. Scrap and $20,000. Scrap and $19,000. 9,000-5,000-1,000 = $3,000 advantage to re-machine. Total relevant cost to re-machine is $5,000. TB The Lantern Corporation has 1,000 obsolete lantern...

4 1468. TB Relay Corporation manufactures batons. Relay can m... Relay Corporation manufactures batons. Relay can manufacture 300,000 batons a year at a variable cost of $750,000 and a fixed cost of $450,000. Based on Relay's predictions for next year, 240,000 batons will be sold at the regular price of $5.00 each. In addition, a special order was placed for 60,000 batons to be sold at a 40% discount off the regular price. Total fixed costs would be unaffected by this order. By what amount would the company's operating income be increased or decreased as a result of the special order? $30,000 increase. $36,000 increase. $60,000 decrease. $180,000 increase. [5 * (1 -.40) - 750,000/300,000] * 60,000 = $30,000 increase. TB Relay Corporation manufactures batons. Relay can m TB The manufacturing capacity of Jordan Company's fac... The manufacturing capacity of Jordan Company's facilities is 30,000 units a year. A summary of operating results for last year follows: A foreign distributor has offered to buy 15,000 units at $90 per unit next year. Jordan expects its regular sales next year to be 18,000 units. If Jordan accepts this offer and rejects some business from regular customers so as not to exceed capacity, what would be the total operating income next year? (Assume that the total fixed costs would be the same no matter how many units are produced and sold.) $390,000. $705,000. $840,000. $855, ,000 *(100-55) + 15,000 * (90-55) - 495,000 = $705,000. TB The manufacturing capacity of Jordan Company's fac...

5 1470. TB Wagner Company sells Product A for $21 per unit. W... Wagner Company sells Product A for $21 per unit. Wagner's unit product cost based on the full capacity of 200,000 units is as follows: A special order offering to buy 20,000 units has been received from a foreign distributor. The only selling costs that would be incurred on this order would be $3 per unit for shipping. Wagner has sufficient idle capacity to manufacture the additional units. Two-thirds of the manufacturing overhead is fixed and would not be affected by this order. Assume that direct labour is an avoidable cost in this decision. In negotiating a price for the special order, what should be the minimum acceptable selling price per unit? $14. $15. $16. $ * (1-2/3) + 3 = $14. TB Wagner Company sells Product A for $21 per unit. W TB A study has been conducted to determine if one of... A study has been conducted to determine if one of the departments in Parry Company should be discontinued. The contribution margin in the department is $50,000 per year. Fixed expenses charged to the department are $65,000 per year. It is estimated that $40,000 of these fixed expenses could be eliminated if the department is discontinued. These data indicate that if the department were discontinued, the company's overall operating income per year would change by how much? An increase of $10,000. A decrease of $10,000. An increase of $25,000. A decrease of $25, ,000-40,000 = 10,000. Operating income decreased by $10,000. TB A study has been conducted to determine if one of...

6 1472. TB A study has been conducted to determine if Product... A study has been conducted to determine if Product A should be dropped. Total sales of the product are $200,000 per year; total variable expenses are $140,000 per year. Total fixed expenses charged to the product are $90,000 per year. The company estimates that $40,000 of these fixed expenses will continue even if the product is dropped. These data indicate that if Product A is dropped, the company's overall operating income per year would change by how much? A decrease of $10,000. An increase of $20,000. A decrease of $20,000. An increase of $30,000. Lost CM = 200, ,000 = $(60,000). Add avoidable costs (90,000-40,000) = $50,000. Operating Income decreased by $10,000. TB A study has been conducted to determine if Product TB Lusk Company produces and sells 15,000 units of Pr... Lusk Company produces and sells 15,000 units of Product A each month. The selling price of Product A is $20 per unit, and variable expenses are $14 per unit. A study has been conducted concerning whether Product A should be discontinued. The study shows that $70,000 of the $100,000 in fixed expenses charged to Product A would continue even if the product were discontinued. These data indicate that if Product A were discontinued, the company's overall monthly operating income would change by how much? An increase of $10,000. An increase of $20,000. A decrease of $20,000. A decrease of $60, ,000 * (20-14) + (100,000-70,000) = - $60,000. Operating income decreased by $60,000. TB Lusk Company produces and sells 15,000 units of Pr TB Manor Company plans to discontinue a department th... Manor Company plans to discontinue a department that has a contribution margin of $24,000 and $48,000 in fixed costs. Of the fixed costs, $21,000 cannot be avoided. What would be the effect of discontinuing the department on Manor's overall operating income? An increase of $3,000. A decrease of $3,000. An increase of $24,000. A decrease of $24, ,000 + (48,000-21,000) = $3,000. Operating income increased by $3,000. TB Manor Company plans to discontinue a department th...

7 1475. TB Gata Co. plans to discontinue a department that ha... Gata Co. plans to discontinue a department that has a $48,000 contribution margin and $96,000 of fixed costs. Of these fixed costs, $42,000 cannot be avoided. What would be the effect of discontinuing the department on Gata's overall operating income? An increase of $6,000. A decrease of $6,000. An increase of $48,000. A decrease of $48, ,000 + (96,000-42,000) = - $6,000. Operating income increased by $6,000 TB Gata Co. plans to discontinue a department that ha TB The Cook Company has two divisions: Eastern and We... The Cook Company has two divisions: Eastern and Western. The divisions have the following revenues and expenses: The management of Cook is considering the elimination of the Eastern Division. If the Eastern Division were eliminated, the direct fixed costs associated with this division could be avoided. However, corporate costs would still be $305,000 in total. Given these data, what would be the overall company's operating income (loss) if the Eastern Division were eliminated? ($155,000). ($75,000). ($60,000). $15, , ,000 = ($155,000). TB The Cook Company has two divisions: Eastern and We...

8 1477. TB Manor Company plans to discontinue a department th... Manor Company plans to discontinue a department that has a contribution margin of $25,000 and $50,000 in fixed costs. Of the fixed costs, $21,000 cannot be eliminated. What would be the effect on the operating income of Manor Company of discontinuing this department? An increase of $4,000. A decrease of $4,000. An increase of $25,000. A decrease of $25, ,000 + (50,000-21,000) = - $4,000. Operating income increased by $4,000. TB Manor Company plans to discontinue a department th TB Green Company produces 1,000 parts per year, which... Green Company produces 1,000 parts per year, which are used in the assembly of one of its products. The unit product cost of these parts is: The part can be purchased from an outside supplier for $20 per unit. If the part is purchased from the outside supplier, two-thirds of the fixed manufacturing costs can be eliminated. What will be the annual impact on the company's operating income of buying the part from the outside supplier? (Do not round intermediate calculations.) $1,000 increase. $1,000 decrease. $2,000 decrease. $5,000 increase. [ * (2/3) - 20] * 1,000 = - $2,000. Operating income decreased by $2,000. TB Green Company produces 1,000 parts per year, which...

9 1479. TB Pitkin Company produces a part used in the manufac... Pitkin Company produces a part used in the manufacture of one of its products. The unit product cost of the part is $33, computed as follows: An outside supplier has offered to provide the annual requirement of 10,000 of the parts for only $27 each. The company estimates that 30% of the fixed manufacturing overhead costs above will continue if the parts are purchased from the outside supplier. Assume that direct labour is an avoidable cost in this decision. Based on these data, what will be the per-unit dollar advantage or disadvantage of purchasing the parts from the outside supplier? $1 advantage. $1 disadvantage. $3 advantage. $4 disadvantage. Cost to make = * (1 -.30) = $30. Advantage to buy = = $3 per unit. TB Pitkin Company produces a part used in the manufac...

10 1480. TB Cardinal Company needs 20,000 units of a certain p... Cardinal Company needs 20,000 units of a certain part to use in one of its products. The following information is available: Cost to Cardinal to make the part: Oriole Company has offered to sell this part to Cardinal Company for $36 each. If Cardinal were to buy the part from Oriole instead of making it, Cardinal would not have any use for the released capacity. In addition, 60% of the fixed manufacturing overhead costs would continue regardless of what decision is made. Assume that direct labour is an avoidable cost in this decision. In deciding whether to make or buy the part, what would be the total relevant costs to make the part? $560,000. $640,000. $720,000. $760, ,000 * [( * (1 -.60)] = $640,000. TB Cardinal Company needs 20,000 units of a certain p...

11 1481. TB Golden, Inc. has been manufacturing 5,000 units of... Golden, Inc. has been manufacturing 5,000 units of Part 10541, which is used in one of its products. At this level of production, the unit product cost of Part is as follows: Brown Company has offered to sell Golden 5,000 units of Part for $19 a unit. Golden has determined that two-thirds of the fixed manufacturing overhead will continue even if Part is purchased from Brown. Assume that direct labour is an avoidable cost in this decision. To determine whether to accept Brown's offer, what are the relevant costs to Golden of manufacturing the parts internally? (Do not round intermediate calculations.) $70,000. $80,000. $90,000. $95,000. [ * (1/3)] * 5,000 = $80,000. TB Golden, Inc. has been manufacturing 5,000 units of TB The following standard costs pertain to a componen... The following standard costs pertain to a component part manufactured by Ashby Company: The company can purchase the part from an outside supplier for $25 per unit. The manufacturing overhead is 60% fixed, and this fixed portion would not be affected by this decision. Assume that direct labour is an avoidable cost in this decision. What would be the relevant amount of the standard cost per unit in a decision of whether to make the part internally or buy it from the external supplier? $2. $15. $19. $ * (1 -.60) = $15. TB The following standard costs pertain to a componen...

12 1483. TB The SP Company makes 40,000 motors to be used in t... The SP Company makes 40,000 motors to be used in the production of its sewing machines. The average cost per motor at this level of activity consists of: An outside supplier recently began producing a comparable motor that could be used in the sewing machine. The price offered to SP Company for this motor is $18. If SP Company decides not to make the motors, there would be no other use for the production facilities, and total fixed factory overhead costs would not change. If SP Company decides to continue making the motor, how much higher or lower would net income be than if the motors are purchased from the outside suppler? Assume that direct labour is a variable cost in this company. $86,000 higher. $92,000 lower. $178,000 higher. $276,000 higher. [18 - ( )] * 40,000 = $86,000 higher. TB The SP Company makes 40,000 motors to be used in t TB Manico Company produces three products%u2014x, Y,... Manico Company produces three products X, Y, & Z with the following characteristics: The company has only 2,000 machine hours available each month. If demand exceeds the company's capacity, in what sequence should orders be filled if the company wants to maximize its total contribution margin? Orders for Z first, X second, and Y third. Orders for X first, Z second, and Y third. Orders for Y first, X second, and Z third. Orders for Z first and no orders for X or Y. CM/hr. for X, Y, Z consecutively = 8/5, 4/3, 9/6 = 1.6, 1.33, 1.5. TB Manico Company produces three products%u2014x, Y,...

13 1485. TB Consider the following production and cost data fo... Consider the following production and cost data for two products, L and C: The company can only perform 65,000 machine setups each period due to limited skilled labour, and there is unlimited demand for each product. What is the largest possible total contribution margin that can be realized each period? $845,000. $910,000. $975,000. $1,820,000. CM/setup for L, C = 130/10, 120/8 = $13, $15. Therefore 65,000/8 = 8,125 units of C at 120 = $975,000. TB Consider the following production and cost data fo TB Products A, B, and C are produced from a single ra... Products A, B, and C are produced from a single raw material input. The raw material costs are $90,000, from which 5,000 units of A, 10,000 units of B, and 15,000 units of C can be produced each period. Product A can be sold at the split-off point for $2 per unit, or it can be processed further at a cost of $12,500 and then sold for $5 per unit. What is the correct course of action regarding Product A? It should be sold at the split-off point, since further processing would result in a loss of $0.50 per unit. It should be processed further, since this will increase profits by $2,500 each period. It should be sold at the split-off point, since further processing will result in a loss of $2,500 each period. It should be processed further, since this will increase profits by $12,500 each period. Incremental Revenue = (5-2) * 5,000 = 15,000. Incremental cost = $12, ,000-12,500 = $2,500 increased profits. TB Products A, B, and C are produced from a single ra...

14 1487. TB The Wyeth Company produces three products%u2014a,... The Wyeth Company produces three products A, B, and C from a single raw material input. Product A can be sold at the split-off point for $40,000, or it can be processed further at a total cost of $15,000 and then sold for $58,000. Joint product costs total $60,000 annually. What is the correct course of action regarding Product A? It should be discontinued since revenues after further processing are less than total joint product costs. It should be sold at the split-off point. It should be processed further and then sold. It should be processed further only if its share of the total joint product costs is less than the incremental revenues from further processing. 58,000-40,000-15,000 = $3,000 of advantage if processed further. TB The Wyeth Company produces three products%u2014a, TB WP Company produces products X, Y, and Z from a si... WP Company produces products X, Y, and Z from a single raw material input in a joint production process. Budgeted data for the next month is as follows: The cost of the joint raw material input is $149,000. Which of the products should be processed beyond the split-off point? Option A Option B Option C Option D X = = $3 = Yes Y = 3, = $1 = Yes Z = 0.50, = $- 1 = No TB WP Company produces products X, Y, and Z from a si...

15 The following are the Wyeth Company's unit costs o... The following are the Wyeth Company's unit costs of making and selling an item at a volume of 10,000 units per month, which represents the company's capacity: Present sales amount to 9,000 units per month. An order has been received from a customer in a foreign market for 1,000 units. The order would not affect current sales. Fixed costs, both manufacturing and selling and administrative, are constant within the relevant range between 8,000 and 10,000 units per month. The variable selling and administrative costs would have to be incurred for this special order as well as all other sales. Assume direct labour is a variable cost. Section Break The following are the Wyeth Company's unit costs o TB How much will the company's operating income be in... How much will the company's operating income be increased or (decreased) if it prices the 1,000 units in the special order at $6 each? ($500). $400. $1,000. $2,500. ( ) * 1,000 = $1,000. TB How much will the company's operating income be in...

16 1490. TB Assume the company has 50 units left over from las... Assume the company has 50 units left over from last year that have small defects and which will have to be sold at a reduced price as scrap. This would have no effect on the company's other sales. What cost is relevant as a guide for setting a minimum price on these defective units? $1.50. $3.50. $5.00. $6.50. Only variable selling and administrative expenses are relevant which is = $1.50. TB Assume the company has 50 units left over from las... The Tolar Company has 400 obsolete desk calculator... The Tolar Company has 400 obsolete desk calculators that are carried in inventory at a total cost of $26,800. If these calculators are upgraded at a total cost of $10,000, they can be sold for a total of $30,000. As an alternative, the calculators can be sold in their present condition for $11,200. Section Break The Tolar Company has 400 obsolete desk calculator TB What is the sunk cost in this situation? What is the sunk cost in this situation? $0. $10,000. $11,200. $26,800. The original cost of inventory is sunk. TB What is the sunk cost in this situation?

17 1492. TB What is the net advantage or disadvantage to the c... What is the net advantage or disadvantage to the company from upgrading the calculators? $8,000 disadvantage. $8,800 advantage. $18,000 disadvantage. $20,000 advantage. 30,000-10,000-11,200 = $8,800 advantage. TB What is the net advantage or disadvantage to the c TB Assume that Tolar decides to upgrade the calculato... Assume that Tolar decides to upgrade the calculators. At what selling price per unit would the company be as well off as if it just sold the calculators in their present condition? $8. $30. $53. $67. (10, ,200)/400 = $53. TB Assume that Tolar decides to upgrade the calculato... The Immanuel Company has just obtained a request f... The Immanuel Company has just obtained a request for a special order of 6,000 jigs to be shipped at the end of the month at a selling price of $7 each. The company has a production capacity of 90,000 jigs per month with total fixed production costs of $144,000. At present, the company is selling 80,000 jigs per month through regular channels at a selling price of $11 each. For these regular sales, the cost for one jig is: If the special order is accepted, Immanuel will not incur any selling expense; however, it will incur shipping costs of $0.30 per unit. Section Break The Immanuel Company has just obtained a request f...

18 1494. TB If Immanuel accepts this special order, what will... If Immanuel accepts this special order, what will be the increase in the monthly operating income? $1,800. $3,600. $12,600. $14,400. [7 - ( )] * 6,000 = $12,600. TB If Immanuel accepts this special order, what will TB At what selling price per unit should Immanuel be... At what selling price per unit should Immanuel be indifferent between accepting or rejecting the special offer? $4.90. $6.40. $7.40. $ = $4.90. TB At what selling price per unit should Immanuel be TB Suppose that total regular sales of jigs are 85,00... Suppose that total regular sales of jigs are 85,000 units per month, and all other conditions remain the same. If Immanuel accepts the special order, what will be the change in monthly operating income? $3,600 decrease. $5,400 decrease. $7,200 increase. $14,000 increase. 12,600-1,000 * ( ) = $7,200 increase. TB Suppose that total regular sales of jigs are 85,00...

19 The Varone Company makes a single product called a... The Varone Company makes a single product called a Hom. The company has the capacity to produce 40,000 Homs per year. Per-unit costs to produce and sell one Hom at that activity level follow: The regular selling price for one Hom is $60. A special order has been received at Varone from the Fairview Company to purchase 8,000 Homs next year at 15% off the regular selling price. If this special order is accepted, the variable selling expense will be reduced by 25%. However, Varone would have to purchase a specialized machine to engrave the Fairview name on each Hom in the special order. This machine would cost $12,000, and Varone would have no use for it after the special order was filled. The total fixed costs, both manufacturing and selling, are constant within the relevant range of 30,000 to 40,000 Homs per year. Assume direct labour is a variable cost. Section Break The Varone Company makes a single product called a TB If Varone can expect to sell 32,000 Homs next year... If Varone can expect to sell 32,000 Homs next year through regular channels and the special order is accepted at 15% off the regular selling price, what would be the effect on operating income next year due to accepting this order? $24,000 decrease. $52,000 increase. $68,000 increase. $80,000 increase. [60 * (1 -.15) * (1 -.25)] * 8,000-12,000 = $68,000. Operating income increases to $68,000. TB If Varone can expect to sell 32,000 Homs next year...

20 1498. TB If Varone can expect to sell 32,000 Homs next year... If Varone can expect to sell 32,000 Homs next year through regular channels, at what special order price from Fairview should Varone be economically indifferent between either accepting or not accepting this special order? $ $ $ $ * (1 -.25) + 12,000/8,000 = $ TB If Varone can expect to sell 32,000 Homs next year TB If Varone has an opportunity to sell 37,960 Homs n... If Varone has an opportunity to sell 37,960 Homs next year through regular channels and the special order is accepted for 15% off the regular selling price, what would be the effect on operating income next year due to accepting this order? $33,320 increase. $33,320 decrease. $35,480 increase. $35,480 decrease. 68,000 - [37,960 - (40,000-8,000)] * ( ) = $33,320 decrease. TB If Varone has an opportunity to sell 37,960 Homs n...

21 Eley Company produces a single product. The cost o... Eley Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 40,000 units per month is as follows: The normal selling price of the product is $86.10 per unit. An order has been received from an overseas customer for 2,000 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.20 less per unit on this order than on normal sales. Direct labour is a variable cost in this company. Section Break Eley Company produces a single product. The cost o TB Suppose there is ample idle capacity to produce th... Suppose there is ample idle capacity to produce the units required by the overseas customer, and the special discounted price on the special order is $76.40 per unit. By how much would this special order increase (decrease) the company's operating income for the month? ($5,000). $13,400. ($17,000). $48,000. [ ( )] * 2,000 = $48,000. TB Suppose there is ample idle capacity to produce th...

22 1501. TB Suppose the company is already operating at capaci... Suppose the company is already operating at capacity when the special order is received from the overseas customer. What would be the opportunity cost of each unit delivered to the overseas customer? $7.20. $8.40. $9.70. $ ( ) = $ TB Suppose the company is already operating at capaci TB Suppose there is not enough idle capacity to produ... Suppose there is not enough idle capacity to produce all of the units for the overseas customer, and accepting the special order would require cutting back on production of 700 units for regular customers. The minimum acceptable price per unit for the special order is closest to which of the following? $ $ $ $ [ ( )] + [(32.50 * 700)/2,000] = $63.78 TB Suppose there is not enough idle capacity to produ...

23 The Clemson Company reported the following results... The Clemson Company reported the following results last year for the manufacture and sale of one of its products, known as a Tam: Clemson Company is trying to determine whether to discontinue the manufacture and sale of Tams. The operating results reported above for last year are expected to continue in the foreseeable future if the product is not dropped. The fixed manufacturing overhead represents the costs of production facilities and equipment that the Tam product shares with other products produced by Clemson. If the Tam product were discontinued, there would be no change in the fixed manufacturing costs of the company. Section Break The Clemson Company reported the following results TB Assume that discontinuing the manufacture and sale... Assume that discontinuing the manufacture and sale of Tams will have no effect on the sale of other product lines. If the company discontinues the Tam product line, what will be the change in the annual operating income (loss)? $55,000 decrease. $65,000 decrease. $70,000 increase. $90,000 decrease. CM lost = 845, ,000-65,000 = (390,000) Fixed costs avoided = 275, ,000 = 300,000. Change in op. income = - 390, ,000 = ($90,000). TB Assume that discontinuing the manufacture and sale...

24 1504. TB Assume that discontinuing the Tam product would re... Assume that discontinuing the Tam product would result in a $120,000 increase in the contribution margin of other product lines. How many Tams would have to be sold next year for the company to be as well off as if it just dropped the line and enjoyed the increase in contribution margin from other products? 5,000 units. 6,000 units. 6,500 units. 7,000 units. CM/unit = 390,000/6,500 = $60. Units required = (275, , ,000)/60 = 7,000 units. TB Assume that discontinuing the Tam product would re...

25 1505. TB Condensed monthly operating income data for Cosmo... Condensed monthly operating income data for Cosmo Inc. for November is presented below. Additional information regarding Cosmo's operations follows the statement: Three-quarters of each store's traceable fixed expenses are avoidable if the store were to be closed. Cosmo allocates common fixed expenses to each store on the basis of sales dollars. Management estimates that closing the Town Store would result in a 10% decrease in Mall Store sales, while closing the Mall Store would not affect Town Store sales. The operating results for November are representative of all months. A decision by Cosmo Inc. to close the Town Store would result in what monthly increase (decrease) in Cosmo's operating income? ($800). $4,000. ($6,000). ($10,800). -36,000-48,000 * ,000 * 3/4 = - ($10,800). TB Condensed monthly operating income data for Cosmo...

26 The Western Company is considering the addition of... The Western Company is considering the addition of a new product to its current product lines. The expected cost and revenue data for the new product are as follows: If the new product is added to the existing product line, then sales of existing products will decline. Therefore, the contribution margin of the other existing product lines is expected to drop $78,000 per year. Section Break The Western Company is considering the addition of TB If the new product is added next year, what will b... If the new product is added next year, what will be the increase in operating income resulting from this decision? $183,000. $207,000. $261,000. $387,000. 3,000 * ( ) - 78,000-51,000-75,000 = $183,000. TB If the new product is added next year, what will b...

27 1507. TB Which lowest selling price per unit could be charg... Which lowest selling price per unit could be charged for the new product that would still make it economically desirable to add the new product? $222. $240. $248. $291. S.P. > [( ) * 3, , , ,000]/3,000 = $248. TB Which lowest selling price per unit could be charg... Bingham Company manufactures and sells Product J.... Bingham Company manufactures and sells Product J. Results for last year for the manufacture and sale of Product J are as follows: Bingham Company anticipates no change in the operating result for Product J in the foreseeable future if the product is produced. Bingham is re-examining all of its products and is trying to decide whether or not to discontinue the manufacture and sale of Product J. The company's total fixed factory overhead cost would not be affected by this decision. Section Break Bingham Company manufactures and sells Product J....

28 1508. TB Assume that discontinuing the manufacture and sale... Assume that discontinuing the manufacture and sale of Product J will not affect the sale of other products. If the company discontinues Product J, what will be the change in annual operating income due to this decision? $25,000 decrease. $145,000 increase. $170,000 decrease. $315,000 decrease. - (1,600, , ,000) + 195, ,000 = ($25,000). Operating income decreased by $25,000. TB Assume that discontinuing the manufacture and sale TB Assume that discontinuing Product J would result i... Assume that discontinuing Product J would result in a $30,000 increase in the contribution margin of other product lines. If Bingham chooses to discontinue Product J, what will be the change in operating income next year due to this action? $5,000 increase. $120,000 increase. $145,000 increase. $145,000 decrease. -25, ,000 = $5,000 increase. TB Assume that discontinuing Product J would result i TB Assume that discontinuing Product J would result i... Assume that discontinuing Product J would result in a $100,000 increase in the contribution margin of other product lines. How many units of Product J would have to be sold next year for the company to be as well off as if it just dropped Product J and enjoyed the increase in contribution margin from other products? 2,500 units. 11,875 units. 15,500 units. 16,125 units. (195, , ,000)/(400,000(CM = 1,600, , ,000 = $400,000. Units required = [(195, , ,000)/(400,000(CM)] * 10,000)/10,000) = 11,875 units. TB Assume that discontinuing Product J would result i...

29 Hadley, Inc. makes a line of bathroom accessories... Hadley, Inc. makes a line of bathroom accessories. Because of a decline in sales, the company has 10,000 machine hours of idle capacity available each year. This idle capacity could be used by the company to make, rather than buy, one of the components used in its production process. Hadley needs 5,000 units of this component each year. At present, the component is being purchased from an outside supplier at $7.50 per unit. Variable production cost for the component would be $4.10 per unit, and additional supervisory costs would be $18,000 per year. Already existing fixed costs, which would be allocated to this part, amount to $300,000 per year. Section Break Hadley, Inc. makes a line of bathroom accessories TB What would be the change in the company's overall... What would be the change in the company's overall annual operating income that would result from making the component, rather than buying it? $1,000 decrease. $5,000 increase. $14,000 decrease. $17,000 increase. [ ( ,000/5,000)] * 5,000 = ($1,000). Operating income will decrease by $1,000). TB What would be the change in the company's overall TB What would the annual cost of additional supervisi... What would the annual cost of additional supervision have to be in order for Hadley to be economically indifferent to making or buying the component? (Assume all other conditions stay the same.) $17,000. $18,000. $19,000. $20,000. ( ) * 5,000 = $17,000. TB What would the annual cost of additional supervisi...

30 The Rodgers Company makes 27,000 units of a certai... The Rodgers Company makes 27,000 units of a certain component each year for use in one of its products. The cost per unit for the component at this level of activity is as follows: Rodgers has received an offer from an outside supplier that is willing to provide 27,000 units of this component each year at a price of $25 per component. Assume that direct labour is a variable cost. Section Break The Rodgers Company makes 27,000 units of a certai TB Assume that there is no other use for the capacity... Assume that there is no other use for the capacity now being used to produce the component, and the total fixed manufacturing overhead of the company would not be affected by this decision. If Rodgers Company were to purchase the components rather than making them internally, what would be the impact on the company's annual operating income? $81,000 decrease. $94,500 increase. $124,000 increase. $237,600 decrease. [( ) - 25] * 27,000 = ($81,000). Operating income decreased by $81,000. TB Assume that there is no other use for the capacity TB Assume that if the components were to be purchased... Assume that if the components were to be purchased from the outside supplier, $35,100 of annual fixed manufacturing overhead would be avoided, and the facilities now being used to make the component would be rented to another company for $64,800 per year. If Rodgers chooses to buy the component from the outside supplier under these circumstances, what would be the impact on annual operating income due to accepting the offer? $18,900 increase. $18,900 decrease. $21,400 increase. $21,400 decrease. [22 + (35, )/27,000-25] * 27,000 = $18,900 increase. TB Assume that if the components were to be purchased...

31 Aholt Company makes 40,000 units per year of a par... Aholt Company makes 40,000 units per year of a part that it uses in the products it manufactures. The unit product cost of this part is computed as follows: An outside supplier has offered to sell the company all the parts that Aholt needs for $46.20 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $264,000 per year. If the part were purchased from the outside supplier, all direct labour cost of the part would be avoided. However, $21.90 of the fixed manufacturing overhead cost being applied to the part would continue, even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products. Section Break Aholt Company makes 40,000 units per year of a par TB How much of the unit product cost of $59.90 is rel... How much of the unit product cost of $59.90 is relevant in the decision of whether to make or buy the part? $ $ $ $ ( ) = $38. TB How much of the unit product cost of $59.90 is rel...

32 1516. TB What is the net total dollar advantage (disadvanta... What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it? ($64,000). $264,000. ($328,000). ($548,000). [( ,000/40,000) ] * 40,000 = ($64,000). TB What is the net total dollar advantage (disadvanta TB What is the maximum amount the company should be w... What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 40,000 units required each year? $6.60. $ $ $ ,000/40,000 = $ TB What is the maximum amount the company should be w...

33 Brown Company makes four products in a single faci... Brown Company makes four products in a single facility. These products have the following unit product costs: Additional data concerning these products are listed below. The grinding machines are potentially a constraint in the production facility. A total of 10,500 minutes are available per month on these machines. Direct labour is a variable cost in this company. Section Break Brown Company makes four products in a single faci TB How many minutes of grinding machine time would be... How many minutes of grinding machine time would be required to satisfy demand for all four products? 10,500 minutes. 10,700 minutes. 10,800 minutes. 11,000 minutes. 3,000 * 2 + 2,000 * ,000 * ,000 *.30 = 10,800 minutes. TB How many minutes of grinding machine time would be...

34 1519. TB Which product makes the LEAST profitable use of th... Which product makes the LEAST profitable use of the grinding machines? Product A. Product B. Product C. Product D. CM/min. for each: A = ( )/2 = $ B = ( )/1.10 = $ C = ( )/.70 = $ D = ( )/.30 = $98.00 TB Which product makes the LEAST profitable use of th TB Which product makes the MOST profitable use of the... Which product makes the MOST profitable use of the grinding machines? Product A. Product B. Product C. Product D. CM/min. for each: A = ( )/2 =$ B = ( )/1.10 = $ C = ( )/.70 = $ D= ( )/.30 = $ Product D has highest return per minute = $98/min. therefore it will be the most profitable use of the grinding machines. TB Which product makes the MOST profitable use of the TB What maximum amount (rounded to the nearest whole... What maximum amount (rounded to the nearest whole cent) should the company be willing to pay for one additional minute of grinding machine time if the company has made the best use of the existing grinding machine capacity? $0. $ $ $ Use of grinding machine time: Available is 10,500. Less D 4,000 *.3 Less C 2,000 *.7 less B 2,000 * 1.1 leaves 5,700 hours for product A which only makes 2,850 units. Additional units to be worked on would be A therefore pay up to $19.25/min TB What maximum amount (rounded to the nearest whole...

35 1522. TB Given the current capacity what is the greatest to... Given the current capacity what is the greatest total contribution margin Brown Company can earn? $124,500. $329,325. $336,300. $570,903. Use of grinding machine time: Available is 10,500. Less D 4,000 *.3 Less C 2,000 *.7 less B 2,000 * 1.1 leaves 5,700 hours for product A which only makes 2,850 units. From question 61 CM/unit is as follows: A = ( ) =$ B = ( ) = $ C = ( ) = $ D= ( ) = $ Using the production and CM/unit calculations the total CM =4,000 * ,000 * ,000 * ,850 * = $330,525. TB Given the current capacity what is the greatest to... Crane Company makes four products in a single faci... Crane Company makes four products in a single facility. Data concerning these products appear below: The milling machines are potentially a constraint in the production facility. A total of 22,600 minutes are available per month on these machines. Section Break Crane Company makes four products in a single faci...

36 1523. TB How many minutes of milling machine time would be... How many minutes of milling machine time would be required to satisfy demand for all four products? 9,000 minutes. 18,400 minutes. 22,600 minutes. 23,700 minutes. 4,000 * ,000 * ,000 * ,000 * 2.5 = 23,700 minutes. TB How many minutes of milling machine time would be TB Which product makes the LEAST profitable use of th... Which product makes the LEAST profitable use of the milling machines? Product A. Product B. Product C. Product D. CM/min. For each: A = ( )/3.30 = B = ( )/1.70 = C = ( )/2.10 = D = ( )/2.50 = 5.68 TB Which product makes the LEAST profitable use of th TB Which product makes the MOST profitable use of the... Which product makes the MOST profitable use of the milling machines? Product A. Product B. Product C. Product D. CM/min. For each: A = ( )/3.30 = B = ( )/1.70 = C = ( )/2.10 = D = ( )/2.50 = Product B has highest return per minute. TB Which product makes the MOST profitable use of the...

37 1526. TB What maximum amount (rounded to the nearest whole... What maximum amount (rounded to the nearest whole cent) should the company be willing to pay for one additional minute of milling machine time if the company has made the best use of the existing milling machine capacity? $0. $4.55. $ $ ,600-1,000 * 1.7-1,000 * 2.5-3,000 * 2.1 = 12,100 minutes remaining to spend on product A. Since there is still demand for this product therefore spend up to $4.545/minute. TB What maximum amount (rounded to the nearest whole... The Madison Company produces three products with t... The Madison Company produces three products with the following costs and selling prices: Section Break The Madison Company produces three products with t TB If the number of direct labour hours is the produc... If the number of direct labour hours is the production constraint, in which order should the company produce the three products? A, B, C. B, C, A. B, A, C. A, C, B. CM/DLH for A, = 9/1 = $9; B = 10/1.5 = $6.67; C = 8/2 = $4 TB If the number of direct labour hours is the produc...

38 1528. TB If the number of machine hours is the production c... If the number of machine hours is the production constraint, in which order should Madison produce the three products? A, B, C. B, A, C. B, C, A. C, A, B. CM/mh A = 9/4.5 = $2; B = 10/2 = $5; C = 8/2.5 = $3.20 TB If the number of machine hours is the production c... Austin Wool Products purchases raw wool and proces... Austin Wool Products purchases raw wool and processes it into yarn. The spindles of yarn can then be sold directly to stores, or they can be used by Austin Wool Products to make afghans. Each afghan requires one spindle of yarn. Current cost and revenue data for the spindles of yarn and for the afghans are as follows: Each month 4,000 spindles of yarn are produced that can either be sold outright or processed into afghans. Section Break Austin Wool Products purchases raw wool and proces...

39 1529. TB If Austin chooses to produce 4,000 afghans each mo... If Austin chooses to produce 4,000 afghans each month, what will be the change in the monthly net operating income as compared to selling 4,000 spindles of yarn? $16,000 increase. $16,000 decrease. $24,000 increase. $24,000 decrease. [(32-12) - (9 + 5)] * 4,000 = $24,000. Operating income increases by $24,000. TB If Austin chooses to produce 4,000 afghans each mo TB If Austin produced and sold 4,000 afghans and zero... If Austin produced and sold 4,000 afghans and zero spindles of yarn the total contribution margin would be closest to: $24,000. $40,000. $60,000. $8,000. 4,000 * ( ) = $60,000. TB If Austin produced and sold 4,000 afghans and zero... Dowchow Company makes two products from a common i... Dowchow Company makes two products from a common input. Joint processing costs up to the split-off point total $38,400 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below: Section Break Dowchow Company makes two products from a common i...

40 1531. TB What is the net monetary advantage (disadvantage)... What is the net monetary advantage (disadvantage) of processing Product X beyond the split-off point? $1,600. ($3,600). $22,400. $27, ,000-26,000-22,600 = ($3,600). TB What is the net monetary advantage (disadvantage) TB What is the net monetary advantage of processing P... What is the net monetary advantage of processing Product Y beyond the split-off point? $3,500. $7,900. $25,500. $29, ,900-22,000-20,400 = $3,500. TB What is the net monetary advantage of processing P TB What is the minimum amount the company should acce... What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point? $20,800. $22,400. $43,400. $45, ,000-3,600 = $22,400. TB What is the minimum amount the company should acce...

41 1534. TB (Appendix 12A) Which of the following items are in... (Appendix 12A) Which of the following items are included in the cost base under the absorption costing approach to cost-plus pricing? Option A Option B Option C Option D TB (Appendix 12A) Which of the following items are in TB (Appendix 12A) Holding all other things constant,... (Appendix 12A) Holding all other things constant, if the unit sales increase, what will happen to the markup under absorption costing? It will increase. It will decrease. It will remain the same. The effect cannot be determined. TB (Appendix 12A) Holding all other things constant,...

42 1536. TB (Appendix 12A) Under time and material pricing, th... (Appendix 12A) Under time and material pricing, the materials loading charge includes which of the following items? Option A Option B Option C Option D TB (Appendix 12A) Under time and material pricing, th TB (Appendix 12A) Under time and material pricing, wh... (Appendix 12A) Under time and material pricing, what is(are) included in the time component? Only the direct costs of the employee, including salary and fringe benefits. A profit element. A loading charge. A charge for ordering and handling inventory items. TB (Appendix 12A) Under time and material pricing, wh TB (Appendix 12A) Which of the following statements i... (Appendix 12A) Which of the following statements is NOT consistent with target costing? The target cost is the anticipated selling price less the desired profit. The technique is most useful in the manufacturing stage of a product. Effective target costing is an integral part of continuous improvement (Kaizen costing) as a management philosophy. In target costing, the anticipated selling price of a product determines the maximum allowable cost for the product. TB (Appendix 12A) Which of the following statements i...

43 1539. TB (Appendix 12A) The following information is availa... (Appendix 12A) The following information is available on Bruder Inc.'s Product A: The company uses the absorption costing approach to cost-plus pricing. Based on these data, what are the total selling, general, and administrative expenses each year? $140,000. $200,000. $240,000. $300,000. Markup = (80-50)/50 = 60%; SGA = 0.60 * (10,000 * 50) - 400,000 *.15 = $240,000. TB (Appendix 12A) The following information is availa...

44 1540. TB (Appendix 12A) Kircher, Inc. manufactures a produc... (Appendix 12A) Kircher, Inc. manufactures a product with the following costs: The company uses the absorption costing approach to cost-plus pricing. The pricing calculations are based on budgeted production and sales of 81,000 units per year. The company has invested $220,000 in this product and expects a return on investment of 15%. The target selling price based on the absorption costing approach would be closest to which of the following? $ $ $ $ Product Cost = ,182,600/81,000 = $ Markup = [(220,000 *.15) + 81,000 * 2 + 1,166,400]/(81,000 * 55.50) = %. Selling price = * ( ) = $ TB (Appendix 12A) Kircher, Inc. manufactures a produc TB (Appendix 12A) Magner, Inc. uses the absorption co... (Appendix 12A) Magner, Inc. uses the absorption costing approach to cost-plus pricing to set prices for its products. Based on budgeted sales of 34,000 units next year, the unit product cost of a particular product is $ The company's selling, general, and administrative expenses for this product are budgeted to be $809,200 in total for the year. The company has invested $400,000 in this product and expects a return on investment of 9%. The target selling price for this product based on the absorption costing approach would be closest to which of the following? $ $ $ $ * [1 + (400,000 * ,200)/(34,000 * 61.80)] = $ TB (Appendix 12A) Magner, Inc. uses the absorption co...

45 1542. TB (Appendix 12A) The Sloan Company must invest $120,... (Appendix 12A) The Sloan Company must invest $120,000 to produce and market 16,000 units of Product X each year. Other cost information regarding Product X is as follows: If Sloan Company requires a 15% return on investment, what would be the markup percentage on absorption cost for Product X, rounded to the nearest percent? 16%. 22%. 29%. 41%. Product cost = ,000/16,000 = $21. Markup = (120,000 * * 16, ,000)/(16,000 * 21) = 41%. TB (Appendix 12A) The Sloan Company must invest $120,...

46 1543. TB (Appendix 12A) The following information is availa... (Appendix 12A) The following information is available on Browning Inc.'s Product A: The company uses the absorption costing approach to cost-plus pricing. Based on these data, what are the total selling, general, and administrative expenses each year? $400,000. $480,000. $640,000. $720,000. Markup = (90-60)/60 = 60%. SGA = [.60 * (20,000 * 60)] - 500,000 *.16 = $640,000. TB (Appendix 12A) The following information is availa...

47 1544. TB (Appendix 12A) Cost data relating to the single pr... (Appendix 12A) Cost data relating to the single product produced by the Jones Company are given below: The Jones Company uses the absorption costing approach with a desired markup of 60%. If the company plans to produce and sell 20,000 units each year, what would be the target selling price per unit? $ $ $ $ ( ,000/20,000) * (1 +.60) = $ TB (Appendix 12A) Cost data relating to the single pr...

48 1545. TB (Appendix 12A) Marvel Company estimates that the f... (Appendix 12A) Marvel Company estimates that the following costs and activity would be associated with the manufacture and sale of one unit of product Y: If the company uses the absorption costing approach to cost-plus pricing and desires a 15% rate of return on investment (ROI), what would be the required markup on absorption cost for product Y? 12%. 15%. 26%. 38%. (400,000 * ,000)/(20,000 * 25) = 38%. TB (Appendix 12A) Marvel Company estimates that the f...

49 1546. TB (Appendix 12A) Joeston Corporation makes a product... (Appendix 12A) Joeston Corporation makes a product with the following costs: The company uses the absorption costing approach to cost-plus pricing. The pricing calculations are based on budgeted production and sales of 14,000 units per year. The company has invested $540,000 in this product and expects a return on investment of 10%. The markup on absorption cost would be closest to which of the following? 10.0%. 27.1%. 34.2% %. Product cost = (305,200/14,000) = $ Markup = (540,000 * * 14, ,800)/(14,000 * 54.30) = 34.2% TB (Appendix 12A) Joeston Corporation makes a product TB (Appendix 12A) Lacy Corporation uses the absorptio... (Appendix 12A) Lacy Corporation uses the absorption costing approach to cost-plus pricing to set prices for its products. Based on budgeted sales of 86,000 units next year, the unit product cost of a particular product is $ The company's selling, general, and administrative expenses for this product are budgeted to be $1,247,000 in total for the year. The company has invested $360,000 in this product and expects a return on investment of 12%. The markup on absorption cost for this product would be closest to which of the following? 12.0%. 17.8%. 18.4%. 29.8%. (360,000 * ,247,000)/(86,000 * 81.60) = 18.4%. TB (Appendix 12A) Lacy Corporation uses the absorptio...

50 1548. TB (Appendix 12A) Straus Company, a manufacturer of e... (Appendix 12A) Straus Company, a manufacturer of electronic products, wants to introduce a new calculator. To compete effectively, the calculator could not be priced at more than $40. The company requires a 20% rate of return on investment on all new products. In order to produce and sell 30,000 calculators each year, the company would have to make an investment of $850,000. What would be the target cost per calculator? $ $ $ $ (30,000 * ,000 *.20)/30,000 = $ TB (Appendix 12A) Straus Company, a manufacturer of e TB (Appendix 12A) Timax Company, a manufacturer of mo... (Appendix 12A) Timax Company, a manufacturer of moderately priced time pieces, would like to introduce a new electronic watch into the market. To compete effectively, the watch could not be priced at more than $50. The company requires a return on investment of 25% on all new products. The plan is to produce and sell 20,000 watches each year. This would require a $500,000 investment. What would be the target cost per watch? $ $ $ $ (20,000 * ,000 *.25)/20,000 = $ per watch TB (Appendix 12A) Timax Company, a manufacturer of mo TB (Appendix 12A) Watkins Company uses time and mater... (Appendix 12A) Watkins Company uses time and material pricing. The time rate is $25 per hour. The material loading charge is 30% for ordering, handling, and storing parts and 10% for the desired profit on materials. Given these data, what would be the total charge for a job that requires 8 hours of labour time and $150 in parts? $260. $410. $430. $ * * ( ) = $410. TB (Appendix 12A) Watkins Company uses time and mater...

51 1551. TB (Appendix 12A) Dresser Company uses time and mater... (Appendix 12A) Dresser Company uses time and material pricing. The time rate is $30 per hour. The material loading charge is 15% for ordering, handling, and storing materials and 25% for the desired profit on these materials. Given these data, what would be the total charge for a job that requires 3 hours of labour time and $80 in materials? $182. $190. $202. $ * * ( ) = $202. TB (Appendix 12A) Dresser Company uses time and mater... Dickson Company makes a product with the following... Dickson Company makes a product with the following costs: The company uses the absorption costing approach to cost-plus pricing. The pricing calculations are based on budgeted production and sales of 60,000 units per year. The company has invested $320,000 in this product and expects a return on investment of 15%. Direct labour is a variable cost in this company. Section Break Dickson Company makes a product with the following...

52 1552. TB (Appendix 12A) The markup on absorption cost is cl... (Appendix 12A) The markup on absorption cost is closest to which of the following? 15.0%. 30.0%. 31.2%. 96.5%. Product cost = ,296,000/60,000 = $65. Markup = (320,000 * ,000 * ,104,000)/(60,000 * 65) = 31.2%. TB (Appendix 12A) The markup on absorption cost is cl TB (Appendix 12A) The target selling price based on t... (Appendix 12A) The target selling price based on the absorption costing approach is closest to which of the following? $ $ $ $ * ( ) = $ TB (Appendix 12A) The target selling price based on t... Eckert Company uses the absorption costing approac... Eckert Company uses the absorption costing approach to cost-plus pricing to set prices for its products. Based on budgeted sales of 18,000 units next year, the unit product cost of a particular product is $ The company's selling, general, and administrative expenses for this product are budgeted to be $370,800 in total for the year. The company has invested $260,000 in this product and expects a return on investment of 11%. Section Break Eckert Company uses the absorption costing approac...

53 1554. TB (Appendix 12A) The markup on absorption cost for t... (Appendix 12A) The markup on absorption cost for this product would be closest to which of the following? 11.0%. 34.1%. 36.7%. 45.1%. (260,000 * ,800)/(18,000 * 60.40) = 36.7%. TB (Appendix 12A) The markup on absorption cost for t TB (Appendix 12A) The target selling price based on t... (Appendix 12A) The target selling price based on the absorption costing approach for this product would be closest to which of the following? Refer To: $ $ $ $ * ( ) = $ TB (Appendix 12A) The target selling price based on t... Raymond Company estimates that an investment of $8... Raymond Company estimates that an investment of $800,000 would be necessary to produce and sell 40,000 units of Product S each year. Costs associated with the new product would be: The company requires a 20% return on the investment in all products. The company uses the absorption costing approach to pricing. Section Break Raymond Company estimates that an investment of $8...

54 1556. TB (Appendix 12A) What is the markup percentage neede... (Appendix 12A) What is the markup percentage needed on Product S in order to achieve the company's required return on investment? 29%. 37%. 40%. 50%. product cost = ,000/40,000 = $ Markup = (800,000 * ,000 * ,000)/(40,000 * 37.50) = 40%. TB (Appendix 12A) What is the markup percentage neede TB (Appendix 12A) What is the target selling price ba... (Appendix 12A) What is the target selling price based on the absorption costing approach? $ $ $ $ * (1 +.40) = $ TB (Appendix 12A) What is the target selling price ba...

55 Mercer Company is planning the introduction of a n... Mercer Company is planning the introduction of a new product. The following information relating to the product has been assembled: The company uses the absorption costing approach to pricing. Section Break Mercer Company is planning the introduction of a n TB (Appendix 12A) The markup percentage that would be... (Appendix 12A) The markup percentage that would be needed on the new product is closest to which of the following? 12.5%. 24.0%. 51.0%. 59.5%. Product cost = ,000/60,000 = $18. Markup = (650,000 *, ,000 * ,000)/(60,000 * 18) = 59.5%. TB (Appendix 12A) The markup percentage that would be...

56 1559. TB (Appendix 12A) The target selling price for one un... (Appendix 12A) The target selling price for one unit of the new product is closest to which of the following? $ $ $ $ * ( ) Markup = (650,000 *, ,000 * ,000)/(60,000 * 18) = 59.5% = $ TB (Appendix 12A) The target selling price for one un TB One of the dangers of allocating common fixed cost... One of the dangers of allocating common fixed costs to a product line is that such allocations can make the line appear less profitable than it really is. True False True / False TB One of the dangers of allocating common fixed cost TB Future costs that do NOT differ among the alternat... Future costs that do NOT differ among the alternatives are NOT relevant in a decision. True False True / False TB Future costs that do NOT differ among the alternat TB Variable costs are always relevant costs. Variable costs are always relevant costs. True False True / False TB Variable costs are always relevant costs.

57 1563. TB An avoidable cost is a cost that can be eliminated... An avoidable cost is a cost that can be eliminated (in whole or in part) by choosing one alternative over another. True False True / False TB An avoidable cost is a cost that can be eliminated TB A sunk cost is a cost that has already been incurr... A sunk cost is a cost that has already been incurred and cannot be avoided regardless of what action is chosen. True False True / False TB A sunk cost is a cost that has already been incurr TB The book value of old equipment is NOT a relevant... The book value of old equipment is NOT a relevant cost in an equipment replacement decision. True False True / False TB The book value of old equipment is NOT a relevant TB Only the variable costs identified with a product... Only the variable costs identified with a product are relevant in a decision concerning whether to eliminate the product or not. True False True / False TB Only the variable costs identified with a product...

58 1567. TB If by dropping a product a firm can avoid more in... If by dropping a product a firm can avoid more in fixed costs than it loses in contribution margin, then the firm is better off economically if the product is dropped. True False True / False TB If by dropping a product a firm can avoid more in TB The cost of resources that has no alternative use... The cost of resources that has no alternative use in a make or buy decision has an opportunity cost of zero. True False True / False TB The cost of resources that has no alternative use TB Managers should pay little attention to bottleneck... Managers should pay little attention to bottleneck operations because they have limited capacity for producing output. True False True / False TB Managers should pay little attention to bottleneck TB Opportunity costs are recorded in the accounts of... Opportunity costs are recorded in the accounts of an organization. True False True / False TB Opportunity costs are recorded in the accounts of...

59 1571. TB All other things equal, it is profitable to contin... All other things equal, it is profitable to continue processing a joint product after the split-off point so long as the incremental revenue from further processing exceeds the incremental costs of further processing. True False True / False TB All other things equal, it is profitable to contin TB Joint production costs are relevant costs in decis... Joint production costs are relevant costs in decisions about what to do with a product from the split-off point onward in the production process. True False True / False TB Joint production costs are relevant costs in decis TB Two or more different products that are manufactur... Two or more different products that are manufactured in the same production period are known as joint products. True False True / False TB Two or more different products that are manufactur TB (Appendix 12A) The absorption costing approach to... (Appendix 12A) The absorption costing approach to cost-plus pricing will result in attaining the company's required rate of return only if forecasted unit sales are realized, holding all other things constant. True False True / False TB (Appendix 12A) The absorption costing approach to...

60 1575. TB Using the profitability index, it is easy to decid... Using the profitability index, it is easy to decide which product is less profitable and should be de-emphasized. True False True / False TB Using the profitability index, it is easy to decid TB (Appendix 12A) The markup over cost under the abso... (Appendix 12A) The markup over cost under the absorption costing approach would increase if the required rate of return increases, holding everything else constant. True False True / False TB (Appendix 12A) The markup over cost under the abso TB (Appendix 12A) The markup over cost under the abso... (Appendix 12A) The markup over cost under the absorption costing approach would increase if the unit product cost increases, holding everything else constant. True False True / False TB (Appendix 12A) The markup over cost under the abso TB (Appendix 12A) The time and material approach pric... (Appendix 12A) The time and material approach pricing will result in attaining the company's desired profit only if forecasted billable activity is realized, holding all other things constant. True False True / False TB (Appendix 12A) The time and material approach pric...

61 1579. TB (Appendix 12A) If a company sells a product for le... (Appendix 12A) If a company sells a product for less than its budgeted unit product cost under absorption costing, then the company will lose money. True False True / False TB (Appendix 12A) If a company sells a product for le TB (Appendix 12A) In target costing, the anticipated... (Appendix 12A) In target costing, the anticipated competitive market price of a product determines its maximum allowable product cost. True False True / False TB (Appendix 12A) In target costing, the anticipated...

62 1581. TB Foster Company makes 20,000 units per year of a pa... Foster Company makes 20,000 units per year of a part that it uses in the products it manufactures. The unit product cost of this part is computed as follows: An outside supplier has offered to sell the company all the parts that Foster needs for $51.80 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $44,000 per year. If the part were purchased from the outside supplier, all of the direct labour cost of the part would be avoided. However, $5.10 of the fixed manufacturing overhead cost that is being applied to the part would continue, even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products. Required: a) How much of the unit product cost of $56.70 is relevant in the decision of whether to make or buy the part? b) What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it? c) What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 20,000 units required each year? a) Relevant cost per unit: b) Net advantage (disadvantage): c) Maximum acceptable purchase price:

63 Essay TB Foster Company makes 20,000 units per year of a pa...

64 1582. TB The Hyatt Company is trying to decide whether it s... The Hyatt Company is trying to decide whether it should purchase new equipment and continue to make its subassemblies internally or if production should be discontinued and the subassembly purchased from an outside supplier. New equipment for producing the subassemblies can be purchased at a cost of $400,000. The equipment would have a five-year useful life (the company uses straight-line depreciation) and a $50,000 salvage value. Alternatively, the subassemblies could be purchased from an outside supplier. The supplier has offered to provide the subassemblies for $9 each under a five-year contract. Hyatt Company's present costs per unit of producing the subassemblies internally (with the old equipment) are given below. The costs are based on a current activity level of 40,000 subassemblies per year: The new equipment would be more efficient and would reduce direct labour costs and variable overhead costs by 25%. Supervision cost ($30,000 per year) and direct materials cost per unit would not be affected by the new equipment. The company has no other use for the space now being used to produce the subassemblies. The company's total general company overhead would not be affected by this decision. Assume direct labour is a variable cost. Required: Assume that 40,000 subassemblies are needed each year. Prepare an analysis of the two alternatives and make a recommendation to the management of the company of the appropriate course of action. The $2.00 per unit general overhead cost is not relevant to the decision. This cost will continue regardless of which alternative the company selects. The depreciation of $0.90 per unit is not a relevant cost because it represents a sunk cost (in addition to the fact that the old equipment is worn out and must be replaced). The cost of the new equipment is relevant because the new equipment will not be purchased if the company decides to accept the outside supplier's offer. The cost of supervision is relevant because this cost can be avoided by purchasing the subassemblies.

65 At the level of 40,000 subassemblies per year, the company should purchase the subassemblies from the outside supplier. Essay TB The Hyatt Company is trying to decide whether it s TB Benjamin Signal Company produces products R, J, an... Benjamin Signal Company produces products R, J, and C from a joint production process. Each product may be sold at the split-off point or be processed further. Joint production costs of $92,000 per year are allocated to the products based on the relative number of units produced. Data for Benjamin's operations for the current year are as follows: Product R can be processed beyond the split-off point for an additional cost of $26,000 and can then be sold for $105,000. Product J can be processed beyond the split-off point for an additional cost of $38,000 and can then be sold for $117,000. Product C can be processed beyond the split-off point for an additional cost of $12,000 and can then be sold for $57,000. Required: Which products should be processed beyond the split-off point? Products R and J should be processed beyond the split-off point. Product C should be sold at split-off. Joint production costs are not relevant to the decision to sell at split-off or to process further. Essay TB Benjamin Signal Company produces products R, J, an...

66 1584. TB Bowen Company produces products P, Q, and R from a... Bowen Company produces products P, Q, and R from a joint production process. Each product may be sold at the split-off point or be processed further. Joint production costs of $81,000 per year are allocated to the products based on the relative number of units produced. Data for Bowen's operations for the current year are as follows: Product P can be processed beyond the split-off point for an additional cost of $10,000 and can then be sold for $50,000. Product Q can be processed beyond the split-off point for an additional cost of $35,000 and can then be sold for $65,000. Product R can be processed beyond the split-off point for an additional cost of $6,000 and can then be sold for $25,000. Required: Which products should be processed beyond the split-off point? Products P and R should be processed beyond the split-off point. Product Q should be sold at split-off. Joint production costs are not relevant to the decision to sell at split-off or to process further. Essay TB Bowen Company produces products P, Q, and R from a...

67 1585. TB Madison Optometry is considering the purchase of a... Madison Optometry is considering the purchase of a new lens grinder to replace a machine that was purchased several years ago. Selected information on the two machines is given below: Ignore income taxes and the time value of money in this problem. Required: Compute the total advantage or disadvantage of using the new machine instead of the old machine over the next four years. The analysis of the alternatives appears below: Therefore, the net disadvantage to purchasing and using the new machine would be $55,000 because its total cost is $55,000 higher than the total cost of using the old machine. Essay TB Madison Optometry is considering the purchase of a...

68 1586. TB Juett Company produces a single product. The cost... Juett Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 70,000 units per month is as follows: The normal selling price of the product is $72.90 per unit. An order has been received from an overseas customer for 2,000 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.10 less per unit on this order than on normal sales. Direct labour is a variable cost in this company. Required: a) Suppose there is ample idle capacity to produce the units required by the overseas customer, and the special discounted price on the special order is $66.10 per unit. By how much would this special order increase (decrease) the company's operating income for the month? b) Suppose the company is already operating at capacity when the special order is received from the overseas customer. What would be the opportunity cost of each unit delivered to the overseas customer? c) Suppose there is not enough idle capacity to produce all of the units for the overseas customer, and accepting the special order would require cutting back on production of 1,300 units for regular customers. What would be the minimum acceptable price per unit for the special order? a)

69 b) The opportunity cost is just the contribution margin on normal sales: c) Minimum acceptable price: Essay TB Juett Company produces a single product. The cost...

70 1587. TB When Mr. Ding L. Berry, president and chief execut... When Mr. Ding L. Berry, president and chief executive of Berry, Inc., first saw the segmented income statement below, he flew into his usual rage: "When will we ever start showing a real profit? I'm starting immediate steps to eliminate those two unprofitable lines!" *These traceable expenses could be eliminated if the product lines to which they are traced were discontinued. Required: Recommend which segments, if any, should be eliminated. Prepare a report in good form to support your answer. A segmented income report, without the allocation of common fixed expenses, will provide the basis for deciding which segments to drop. The only segment that possibly should be eliminated is segment W, which shows a negative segment margin of $2,000. Essay TB When Mr. Ding L. Berry, president and chief execut...

71 1588. TB Northern Stores is a retailer in British Columbia... Northern Stores is a retailer in British Columbia. The most recent monthly income statement for Northern Stores is given below: Northern is considering closing Store I. If Store I is closed, one-fourth of its traceable fixed expenses would continue to be incurred. Also, the closing of Store I would result in a 20% decrease in sales in Store II. Northern allocates common fixed expenses on the basis of sales dollars and none of these costs would be saved if a store were shut down. Required: Compute the overall increase or decrease in the operating income of Northern Stores if Store I is closed. Essay TB Northern Stores is a retailer in British Columbia...

72 1589. TB The Anaconda Mining Company currently is operating... The Anaconda Mining Company currently is operating at less than 50% of practical capacity. The management of the company expects sales to drop below the present level of 15,000 tonnes of ore per month very soon. The selling price per tonne of ore is $2, and the variable cost per tonne is $1. Fixed costs per month total $15,000. Management is concerned that a further drop in sales volume will generate a loss and, accordingly, is considering the temporary suspension of operations until demand in the metals markets returns to normal levels and prices rebound. Management has implemented a cost reduction program over the past year that has been successful in reducing costs. Nevertheless, suspension of operations appears to be the only viable alternative. Management estimates that suspension of operations would reduce fixed costs from $15,000 to $5,000 per month. Required: a) Why does management estimate that fixed costs will persist at $5,000 per month although the mine is temporarily closed? b) At what sales volume should management suspend operations at the mine? a) Some fixed costs will continue to be incurred despite the temporary closing of the mine. Key employees cannot be discharged because these employees will seek employment elsewhere and replacing them could prove to be quite costly. A skeleton staff would be needed to perform some administrative functions. Additionally, the maintenance of building and equipment would need to continue to prevent damage that would be costly to repair. Taxes and insurance would continue to be paid during the shut-down period. b) Suspension of operations would be desirable when sales volume drops below 10,000 tonnes as shown below: Each tonne extracted contributes $1.00 per tonne towards fixed costs: Sales volume necessary to recover $10,000 of fixed costs: Essay TB The Anaconda Mining Company currently is operating...

73 1590. TB Kramer Company makes 4,000 units per year of a par... Kramer Company makes 4,000 units per year of a part called an axial tap for use in one of its products. Data concerning the unit production costs of the axial tap follow: An outside supplier has offered to sell Kramer Company all of the axial taps it requires. If Kramer Company decided to discontinue making the axial taps, 40% of the above fixed manufacturing overhead costs could be avoided. Assume that direct labour is a variable cost. Required: a) Assume Kramer Company has no alternative use for the facilities presently devoted to production of the axial taps. If the outside supplier offers to sell the axial taps for $65 each, should Kramer Company accept the offer? Fully support your answer with appropriate calculations. b) Assume that Kramer Company could use the facilities presently devoted to production of the axial taps to expand production of another product that would yield an additional contribution margin of $80,000 annually. What is the maximum price Kramer Company should be willing to pay the outside supplier for axial taps? a) The analysis of the alternatives follows below: * 40% $20 The company should make the part rather than buy it from the outside supplier because it costs $4 less under that alternative. b) The maximum acceptable price is $81 because that is the cost to the company of making the part itself when the opportunity cost is included: Essay TB Kramer Company makes 4,000 units per year of a par...

74 1591. TB Glocker Company makes three products in a single f... Glocker Company makes three products in a single facility. These products have the following unit product costs: Additional data concerning these products are listed below. The mixing machines are potentially a constraint in the production facility. A total of 5,900 minutes are available per month on these machines. Direct labour is a variable cost in this company. Required: a) How many minutes of mixing machine time would be required to satisfy demand for all four products? b) How much of each product should be produced, rounded to the nearest whole unit, to maximize operating income c) Up to how much should the company be willing to pay, rounded to the nearest whole cent, for one additional minute of mixing machine time if the company has made the best use of the existing mixing machine capacity? a) Demand on the mixing machine: Total time required for all products: 6,500 minutes b) Optimal production plan:

75 c) The company should be willing to pay up to the contribution margin per minute for the marginal job, which is $ Essay TB Glocker Company makes three products in a single f...

76 1592. TB Holt Company makes three products in a single faci... Holt Company makes three products in a single facility. Data concerning these products follow: The mixing machines are potentially a constraint in the production facility. A total of 25,800 minutes are available per month on these machines. Direct labour is a variable cost in this company. Required: a) How many minutes of mixing machine time would be required to satisfy demand for all four products? b) How much of each product should be produced, rounded to the nearest whole unit, to maximize operating income? c) Up to how much should the company be willing to pay, rounded to the nearest whole cent, for one additional minute of mixing machine time if the company has made the best use of the existing mixing machine capacity? a) Demand on the mixing machine: Total time required for all products: 26,700 minutes b) Optimal production plan:

77 c) The company should be willing to pay up to the contribution margin per minute for the marginal job, which is $5.15. Essay TB Holt Company makes three products in a single faci...

78 1593. TB Redner, Inc. produces three products. Data concern... Redner, Inc. produces three products. Data concerning the selling prices and unit costs of the three products appear below: Fixed costs are applied to the products on the basis of direct labour hours. Demand for the three products exceeds the company's productive capacity. The grinding machine is the constraint, with only 2,400 minutes of grinding machine time available this week. Required: a) Given the grinding machine constraint, which product should be emphasized? Support your answer with appropriate calculations. b) If there is still unfilled demand for the product that the company should emphasize in part a) above, up to how much should the company be willing to pay for an additional hour of grinding machine time? a) The product to emphasize can be determined by computing the contribution margin per unit of the scarce resource, which in this case is grinding machine time. Product L should be emphasized because it has the greatest contribution margin per unit of the scarce resource. b) If additional grinding machine time is used to produce more of Product L, the time would be worth 60 $5 = $300 per hour. Essay TB Redner, Inc. produces three products. Data concern...

79 1594. TB Iaci Company makes two products from a common inpu... Iaci Company makes two products from a common input. Joint processing costs up to the split-off point total $42,000 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below: Required: a) What is the net monetary advantage (disadvantage) of processing Product X beyond the split-off point? b) What is the net monetary advantage (disadvantage) of processing Product Y beyond the split-off point? c) What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point? d) What is the minimum amount the company should accept for Product Y if it is to be sold at the split-off point? a) & b) c) & d) Essay TB Iaci Company makes two products from a common inpu...

80 1595. TB Harris Corp. manufactures three products from a co... Harris Corp. manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $200,000 per year. The company allocates these costs to the joint products on the basis of their total sales value at the split-off point. Each product may be sold at the split-off point or processed further. The additional processing costs and sales value after further processing for each product (on an annual basis) are: The "Further Processing Costs" consist of variable and avoidable fixed costs. Required: Which product or products should be sold at the split-off point, and which product or products should be processed further? Show computations. Product K should be sold after further processing beyond the split-off point. Products J and L should be sold at the split-off point without any further processing. Essay TB Harris Corp. manufactures three products from a co...

81 1596. TB (Appendix 12A) Qualls Company makes a product that... (Appendix 12A) Qualls Company makes a product that has the following costs: The company uses the absorption costing approach to cost-plus pricing. The pricing calculations are based on budgeted production and sales of 48,000 units per year. The company has invested $360,000 in this product and expects a return on investment of 15%. Required: a) Compute the markup on absorption cost. b) Compute the target selling price of the product using the absorption costing approach. a) b) Essay TB (Appendix 12A) Qualls Company makes a product that...

82 1597. TB (Appendix 12A) Riley Company makes a product that... (Appendix 12A) Riley Company makes a product that has the following costs: The company uses the absorption costing approach to cost-plus pricing. The pricing calculations are based on budgeted production and sales of 48,000 units per year. The company has invested $500,000 in this product and expects a return on investment of 15%. Required: a) Compute the markup on absorption cost. b) Compute the target selling price of the product using the absorption costing approach. a) b) Essay TB (Appendix 12A) Riley Company makes a product that...

83 1598. TB (Appendix 12A) Trevor Company is contemplating the... (Appendix 12A) Trevor Company is contemplating the introduction of a new product. The company has gathered the following information concerning the product: The company uses the absorption costing approach to cost-plus pricing. Required: a) Compute the markup on absorption cost. b) Compute the target selling price. c) If the price computed in part b) above is charged, and costs turn out as projected, can the company be assured that no loss will be sustained on the new product? Explain. c) No, sales volume may be less than the 12,000 units projected annually, resulting in inadequate contribution margin to cover fixed costs, and a consequent loss for the company on the product. Essay TB (Appendix 12A) Trevor Company is contemplating the...

84 1599. TB (Appendix 12A) Ritchie Corporation manufactures a... (Appendix 12A) Ritchie Corporation manufactures a product that has the following costs: The company uses the absorption costing approach to cost-plus pricing. The pricing calculations are based on budgeted production and sales of 37,000 units per year. The company has invested $160,000 in this product and expects a return on investment of 15%. Required: a) Compute the markup on absorption cost. b) Compute the target selling price of the product using the absorption costing approach. Fixed Overhead = 817,700/37,000 = Essay TB (Appendix 12A) Ritchie Corporation manufactures a...

85 1600. TB (Appendix 12A) Green Hornet Company is contemplati... (Appendix 12A) Green Hornet Company is contemplating the introduction of a new product. The company has gathered the following information concerning the product: The company uses the absorption costing approach to cost-plus pricing. Required: a) Compute the markup on absorption cost. b) Compute the target selling price. Essay TB (Appendix 12A) Green Hornet Company is contemplati...

86 1601. TB Gildersleeve Corporation manufactures a product th... Gildersleeve Corporation manufactures a product that has the following costs: The company uses the absorption costing approach to cost-plus pricing. The pricing calculations are based on budgeted production and sales of 30,000 units per year. The company has invested $600,000 in this product and expects a return on investment of 15%. Required: a) Compute the markup on absorption cost. b) Compute the target selling price of the product using the absorption costing approach. Essay TB Gildersleeve Corporation manufactures a product th...

87 1602. TB (Appendix 12A) Turnhilm, Inc. is considering addin... (Appendix 12A) Turnhilm, Inc. is considering adding a small electric mower to its product line. Management believes that in order to be competitive, the mower cannot be priced above $139. The company requires a minimum return of 25% on its investments. Launching the new product would require an investment of $8,000,000. Sales are expected to be 40,000 units of the mower per year. Required: a) Compute the target cost of a mower. b) Suppose the target cost calculated in part (b) above is not attainable using the company's current manufacturing facilities. Specifically, the average cost of producing the 40,000 units is $100 per unit. Besides abandoning the idea, what specific options are available to Turnhilm? c) Suppose, using the company's current manufacturing facilities the average cost of producing the 40,000 units is only $80. What other specific options are available to Turnhilm? a) b) One option is for the company to go ahead and introduce the product but at a higher price than the competition and still desire a minimum return of 25% on its investments. Most likely, the demand will be less than 40,000 units unless the higher cost includes more features than the competition. This option assumes cost reductions (using techniques such as activity-based management, theory of constraints, and TQM) are not possible. Another option is introducing the product at the same price as the competition but lowering the required minimum return on investment. The required minimum return is about 19.50%, that is: This option is more plausible than the first unless the company's cost of capital is much higher than the 25% required minimum return on investment. c) One attractive option is price reduction to gain market share or force the competition to lower their price. A price of $130 can accomplish this latter goal (that is, ($2,000,000 + ($80 40,000))/40,000)). A possible outcome of this strategy is price war which can result in significant losses for all including Turnhilm. Another option is to charge the same price as the competition and earn a higher return on investment for Turnhilm's shareholders. The resulting return is about 29.50% (that is, ($5,560,000 - ($80 40,000))/$8,000,000)). Essay TB (Appendix 12A) Turnhilm, Inc. is considering addin...

88 1603. TB Juanita earns $68,000 annually as a marketing spec... Juanita earns $68,000 annually as a marketing specialist in Mexico City, Mexico. She has applied for admission to the M.B.A program at Dalhousie University. If accepted, she will resign and move to Halifax, Nova Scotia. Juanita has assembled the following data to make the decision: Required: a) Calculate the following in the context of Juanita's decision: (i) Total sunk costs (if any) (ii) Total differential or incremental costs (if any) (iii) Total opportunity costs (if any) b) What is your best estimate of the total cost to Juanita of earning an M.B.A. degree if it will take her 12 months to complete the program? c). Suppose you are Juanita. What specific additional information would you need in order to make a rational decision to pursue and successfully complete the MBA program at Dalhousie? Explain. a) (i) Total sunk costs are $600 (cost of two business suits purchased just prior to resigning) (ii) Total differential/incremental costs: Note: The auto expenses are not differential or incremental because they remain the same in Mexico City and Halifax. (iii) Total opportunity costs are $68,000 (Juanita's annual salary forgone) b) Total cost to Juanita of earning an MBA degree

89 c) Specific additional information required to make a rational decision includes: Expected benefits from having an MBA degree. Examples are increased salary, personal growth, enhanced reputation and network of classmates Reputation of the Dalhousie MBA program in comparison to other programs. This may be especially relevant if benefits from network of classmates are important to Juanita. Feasibility of obtaining similar (or even superior) qualification using non-traditional means (for example, internet-based MBA from reputable universities). This option may be more attractive to Juanita because most of the incremental costs can be saved as well as the opportunity cost. Essay TB Juanita earns $68,000 annually as a marketing spec...

90 1604. TB (Appendix 12A) iburst Technology is developing a h... (Appendix 12A) iburst Technology is developing a high-speed modem to connect notebook computers with isun's satellite-based data network. The cross-functional team in charge of the project has assembled the following information: Required: a) Given the above information calculate the cost reduction target. b) If the cross-functional team believes the cost of the modem cannot be reduced by any more than 18%, is this a feasible product for iburst Technology? Why or why not? c) Whether the cost reduction target is feasible or not, what can the cross-functional team do to further reduce cost? a) Cost reduction target (Note: The currently feasible cost averages to $ per unit ($50,000,000/300,000 units) which exceeds the average target unit cost of $120. The difference multiplied by 300,000 units equals the total cost reduction target of $14,000,000.) b) Attainable cost Decision: The product is NOT feasible for any of the following reasons: The total attainable minimum cost of $41,000,000 exceeds the total target cost of $36,000,000. The minimum attainable average unit cost of $ exceeds the average unit target cost of $120. The maximum attainable cost of reduction percentage of 18% is less than the required cost reduction percentage of 28% ($14 million/$50 million.) The maximum attainable cost reduction of $9 million is less than the required cost reduction target of $14 million. The required return of 20% on sales exceeds the maximum attainable return on sales of 8.89% (i.e. (($150 - $136.67)/$150) or (($45 million - $41 million)/$45 million))) c) Possible actions to further reduce the costs of production include Eliminate or reduce non-value added activities. Outsource some of the activities in which the firm does not have competitive advantage and that are also not the firm's sources of