FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 23: Relevant Costing for Managerial Decisions

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 51

Multiple Choice

Review LaterAdd Note

Review Later

Rocko Inc.has a machine with a book value of $50,000 and a five-year remaining life.A new machine is available at a cost of $85,000 and Rocko can also receive $38,000 for trading in the old machine.The new machine will reduce variable manufacturing costs by $14,000 per year over its five-year life.Should the machine be replaced?

A) Yes, because income will increase by $14,000 per year.
B) Yes, because income will increase by $23,000 in total.
C) No, because the company will be $23,000 worse off in total.
D) No, because the income will decrease by $14,000 per year.
E) Rocko will be not be better or worse off by replacing the machine.

F) A) and E)
G) B) and C)

Correct Answer

verified

Show Answer

Question 52

Multiple Choice

Review LaterAdd Note

Review Later

Wave-Zone Company has 10,000 units of its sole product that it produced last year at a cost of $50 each.This year's model is superior to last year's and the 10,000 units cannot be sold for their regular selling price of $75 each.Wave-Zone has two alternatives for these items: (1) they can be sold to a wholesaler for $5 each,or (2) they can be reworked at a total cost of $190,000 and then sold for $22.50 each.The company has enough idle capacity to rework these items without affecting any new production.Which choice would increase the company's profits the most?

A) Reworking, because profit will increase by $35,000 more than scrapping.
B) Scrapping, because profit will increase by $50,000 more than reworking.
C) Reworking, because profit will increase by $15,000 more than scrapping.
D) Scrapping, because profit will increase by $15,000 more than reworking.
E) Reworking because profit will increase by $50,000 more than scrapping.

F) C) and D)
G) A) and B)

Correct Answer

verified

Show Answer

Question 53

Multiple Choice

Review LaterAdd Note

Assume markup percentage equals desired profit divided by total costs.What is the correct calculation to determine the dollar amount of the markup per unit?

To maximize profit when a constrained resource exists,management should produce the sales mix that has the highest contribution margin per unit of scarce resource.

__________________________ costs are amounts the company would not incur if a segment was eliminated.

A special order of goods or services should always be accepted when the incremental revenue exceeds the normal revenue.

Bandy Corporation owns a machine that manufactures lawn games.Production time for the croquet set is 10 units per hour and for the volley ball game is 8 units per hour.The machine's capacity is 1,500 hours per year.Both products are sold to a single customer who has agreed to buy all of the company's output up to a maximum of 4,000 croquet sets and 10,000 volleyball games.Selling prices and variable costs per unit are shown below.Based on this information,what is Bandy Corporation's most profitable sales mix? $\begin{array}{lrr}&\text { Croquet Set }& \text { Vollevball Game }\\\text { Selling price per unit } & \$ 75 & \$ 62 \\\text { Variable costs per unit } & 42 & 25\end{array}$

A company expects to produce and sell 9,000 units of a single product.Management desires an 18% return on assets of $1,750,000.The following additional company information is available: $\begin{array}{lr}\text { Variable costs (per unit) } & \\\text { Production costs } & \$ 79 \\\text { Nonproduction costs } & \$ 5 \\ \text { Fixed costs (in total) } &\\\text { Overhead } & \$ 279,000 \\\text { Nonproduction } & \$ 90,000\end{array}$ Compute markup per unit.Assume that markup percentage equals desired profit divided by total costs.

A company is considering a new project that will cost $19,000.This project would result in additional annual revenues of $6,000 for the next five years.The $19,000 cost is an example of a(n) :

Altertech Inc.manufactures a product that contains a circuit board.The company has always purchased this circuit board from a supplier for $32 each.Altertech recently upgraded its own manufacturing capabilities and now has enough excess capacity (including trained workers) to begin manufacturing the circuit board instead of buying it.The company prepared the following per unit cost projections of making the circuit board,assuming that overhead is allocated to the part at the normal predetermined overhead rate of 110% of direct labor cost. $\begin{array} { l l } \text { Direct materials } & \$ 2 \\\text { Direct labor } &2 0 \\\text { Overhead (fixed and } & 2 2 \\\text { variable) } & \\\text { Total } & \$ 44\end{array}$ The required volume of output to produce the circuit boards will not require any incremental fixed overhead.Incremental variable overhead cost is $3 per circuit board.What is the effect on income if Altertech decides to make the circuit boards?

Most financial measures of revenues and costs from accounting systems are based on historical costs.

Walters Industries manufactures a product that contains part XYZ.The company has always purchased this part from a supplier for $70 each.Walters recently upgraded its own manufacturing capabilities and now has enough excess capacity (including trained workers)to begin manufacturing the part instead of buying it.The company prepared the following per unit cost projections of making the part,assuming that overhead is allocated to the part at the normal predetermined overhead rate of 60% of direct labor cost: $\begin{array}{llr} \text {Direct materials } &\$52.00\\ \text { Direct labor } &16.00\\ \text { Overhead (fixed and variable)} &9.60\\ \text { Total } &\$77.60\\\end{array}$ The required volume of output to produce the parts will not require any incremental fixed overhead.Incremental variable overhead cost is $4.50 per part.Should Walters make or buy the parts?

Explain and give several examples of qualitative decision factors.

What is the difference between an opportunity cost and a sunk cost?

An out-of-pocket cost requires a current and/or future outlay of cash.

Match the following definitions with the appropriate terms

A company produces three different products that all require processing on the same machines.There are only 27,000 machine hours available in each year.Production information for each product is: $\begin{array}{lrrr}&\text { A}&\text { B}&\text { C}\\ \text { Sales price per unit } & \$ 20.00 & \$ 38.00 & \$ 35.00 \\\text { Variable costs per unit } & \$ 12.00 & \$ 26.00 & \$ 17.00 \\\text { Machine hours necessary to produce one } & 2.5 & 4.0 & 4.50\\\text { unit } \end{array}$ Required: a.Determine the preferred sales mix if there are no market constraints on any of the products. b.Determine the preferred sales mix if the demand is limited to 5,000 units for each product. c.Determine the preferred sales mix if the demand is limited to 3,000 units for each product.

A company paid $200,000 10 years ago for a specialized machine that has no salvage value and is being depreciated at the rate of $10,000 per year.The company is considering using the machine in a new project that will have incremental revenues of $28,000 per year and annual cash expenses of $20,000.In analyzing the new project,the $10,000 depreciation on the machine is an example of a(n) :

Reference: 23_03 Teague Plumbing has received a special one-time order for 1,500 toilets (units) at $75 per unit. Teague currently produces and sells 7,500 units at $100 each. This level represents 75% of its capacity. Production costs for these units are $75 per unit, which includes $70 variable cost and $5 fixed cost. To produce the special order, shipping costs of $10,000 will be incurred. Management expects no other changes in costs as a result of the additional production. -If Teague wishes to earn $1,250 on the special order,the size of the order would need to be:

An ________________________ requires a future outlay of cash and is relevant for current future decision making.