1. Which of the following best describes a "sunk cost"?
A) Costs that were incurred in the past and cannot be changed
B) Benefits foregone by choosing a particular alternative course of action
C) A factor that restricts the production or sale of a product
D) Costs that were incurred in the past, but can impact future decisions
2. When a firm has limited direct labor hours, it should prioritize the product with
A. the highest selling price per unit.
B. the highest contribution margin per unit.
C. the highest contribution margin per direct labor hour.
D. the highest demand from customers.
3. Costs that change across decision alternatives are
A. opportunity costs.
B. sunk costs.
C. differential costs.
D. irrelevant costs.
4. Managers should consider all of the following when deciding whether to accept a special order, except
A) available excess capacity.
B) the variable costs associated with the special order.
C) the effect of the order on regular sales.
D) fixed costs that must be paid for the period.
5. Which of the following best describes "target costing"?
A) An approach to pricing that begins with revenue at market price and subtracts desired profit to arrive at target total cost
B) An approach to pricing that begins with the product's total cost and adds desired profit
C) The level of costs the managers target as a goal to ensure favorable variances will always be achieved
D) Finding all costs incurred in connection with the product or service and confirming they are value-added and eliminated/reduced, if not
6. When considering whether or not to discontinue a product line, unavoidable fixed costs are
A) irrelevant because they will differ between alternatives.
B) relevant because they will be eliminated if the product line is dropped.
C) irrelevant because they will not differ between alternatives.
D) relevant because management can spend the money saved on these costs on an alternative product.
7. All of the follow' are considerations for discontinuing a product or product line, except
A) Whether the product has a positive or negative contribution margin.
B) Not having any free capacity.
C) If discontinuing the product or product line will affect sales of remaining products.
D) Determining if direct fixed costs could be avoided if the product or product line is discontinued.
8. All of the following are outsourcing considerations, except
A) Are any fixed costs avoidable if we outsource?
B) How do our common fixed costs compare to the outsourcing cost?
C) What could we do with the freed capacity?
D) How do our variable costs compare to the outsourcing cost?
9. NRG Corporation is weighing a "sell as is or process further" decision. They can sell a textbook as is or continue processing to include an instructional DVD as well. Which of the following would not be a consideration for their decision?
A) Revenue generated if sold "as is"
B) Revenue generated if "further processed"
C) Costs involved in making the textbook
D) Costs involved in making the instructional DVD
Tip! The problems are below. Make sure you READ THE INFORMATION CAREFULLY. It will not be exactly the same as your homework or what we did in class because then you wouldn't have to think about it! Stop and really think about what information is given, what information is relevant, and then solve! Ask if you have questions or want clarity on what I'm asking/providing!
10. Andrill Corp produces two products and is currently facing a labor shortage. The selling price, costs, and labor requirements are as follows:
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Product A
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Product B
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Selling price
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$50
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$30
|
|
Variable cost per unit
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$35
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$10
|
|
Direct labor hours needed per unit
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1.5
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3
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Andrill can only produce one product during the shortage. Which should Andrill produce during the shortage and WHY?
11. Cruise Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 6,000 units, are as follows
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Direct Materials
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$ 4.00
|
|
Direct labor
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$ 4.00
|
|
Variable Manufacturing overhead
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$3.00
|
|
Fixed manufacturing overhead ($ 30,000 total per year)
|
$ 5.00
|
|
Total cost
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$ 16.00
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Shuri Company has offered to sell 6,000 units of the same part to Cruise Company for $ 14 per unit. If the Cruise Company buys the product, the full amount of fixed overhead costs would be assigned to another product Cruise Company makes. Assuming the company has no other use for its facilities, how much does it cost Cruise to make the part? How much does it cost to buy the part? Should Cruise continue to make the product or should they buy it and explain WHY?
Cost to Make:
Cost to Buy:
Decision:
If Suri decided to only charge $10 per unit, would your decision change? Explain WHY and be specific and note any assumptions you're making!
12. Indicate whether each item below is a characteristic of a price-taker or a price-setter. Use PT for price-taker and PS for price-setter.
a) Cost-plus pricing
b) Product lacks uniqueness
c) Less competition
d) Target pricing
13. Sky High Seats manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but currently produce and sells 75,00 seats per year. The following information relates to the current production of the product:
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Regular sale price per unit
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$400
|
|
Variable costs per unit:
|
|
|
Manufacturing
|
$220
|
|
Marketing and administrative
|
$50
|
|
Total fixed costs:
|
|
|
Manufacturing
|
$750,000
|
|
Marketing and administrative
|
$200,000
|
If a special sales order is accepted for 7,000 seats at a price of $350 per unit, determine (4 points):
1) The total amount of impact on operating income/loss the special order would have
2) Whether they should accept or reject the special order. EXPLAIN WHY/WHY NOT. Be specific and list any assumptions you're making.
14. Westfall Watches is considering discontinuing its Sporty line due to the following data:
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Total
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Luxury
|
porty
|
|
Sales revenue
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$490,000
|
$360,000
|
$130,000
|
|
Variable expenses
|
355,000
|
235,000
|
120
|
|
Contribution margin
|
135,000
|
125,000
|
10,000
|
|
Fixed expenses
|
76,000
|
38,000
|
38,000
|
|
Operating income (loss)
|
$59,000
|
$87,000
|
($28,000)
|
If $20,000 of fixed costs are avoidable and $18,000 are unavoidable by discontinuing the Sporty line, how will operating income be affected (give amount and specify whether increased/decreased)?
SHOW YOUR WORK for determining this to earn any points. Should they drop the Sporty line?
Explain-be specific and list any assumptions you're making.