Question 1: Toledo Toy Company incurred the following costs during 20x4. The company sold all of its products manufactured during the year.
During 20x4, the company operated at about half of its capacity, due to a slowdown in the economy. Prospects for 20x5 are slightly better. Jared Lowes, the marketing manager, forecasts a 30 percent growth in sales over the 20x4 level.
Direct material .....................................................................$4500000
Direct labor ..........................................................................3.300.000
Manufacturing overhead:
Utilities (primarily electricity) ................................................... 210.000
Depreciation on plant and equipment .........................................345.000
Insurance ................................................................................240.000
Supervisory salaries ..................................................................450,000
Property taxes ..........................................................................315.000
Selling costs:
Advertising ............................................................................... 292,500
Sales commissions .....................................................................135.000
Administrative costs:
Salailes of top management and staff ........................................ 558.000
Office supplies ............................................................................ 60.000
Depreciation on building and equipment ........................................120,000
Categorize each of the costs listed above as to whether it is most likely variable or fixed. Forecast the 20x5 coast amount for each of the cost items listed above.
Question 2: The following terms are used to describe various economic characteristics of costs.
a. Opportunity cost
b. Out-of-pocket cost
c. Sunk cost
d. Differential cost
e. Marginal cost
f. Average cost
Choose one of the terms listed above to characterize each of the amounts described below.
A. The management of a high-rise office building uses 3,100 square feet of space in the building for its own management functions. This space could be rented for $335,000. What economic term describes this $335,000 in lost rental revenue?
B. The cost of building an automated assembly line in a factory is $700,000. The cost of building a manually operated assembly line is $475,000. What economic term is used to describe the difference between these two amounts?
C. Referring to the preceding question, what economic term is used to describe the $700,000 cost of building the automated assembly line?
D. The cost incurred by a mass customizer such as Dell Computer to produce one more unit in its most popular line of laptop computers.
E. The cost of feeding 400 children in a public school cafeteria is $740 per day, or $1.85 per child per day. What economic term describes this $1.85 cost?
F. The cost of including one extra child in a day-care center.
G. The cost of merchandise inventory purchased two years ago, which is now obsolete.
Question 3: Piedmont Industries currently manufactures 40,000 units of part JR63 each month for use in production of several of its products. The facilities now used to produce part JR63 have a fixed monthly cost of $165,000 and a capacity to produce 74,000 units per month. If the company were to buy part JR63 from an outside supplier, the facilities would be idle, but its fixed costs would continue at $45,000. The variable production costs of part JR63 are $12 per unit.
A. If Piedmont Industries continues to use 40,000 units of part JR63 each month, it would realize a net benefit by purchasing part JR63 from an outside supplier only if the supplier’s unit price is less than what amount?
B. If Piedmont Industries is able to obtain part JR63 from an outside supplier at a unit purchase price of $14, what is the monthly usage at which it will be indifferent between purchasing and making part JR63?