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Exam 23: Relevant Costing for Managerial Decisions

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Question 51

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Walters manufactures a specialty food product that can currently be sold for $22 per unit and has 20,000 units on hand.Alternatively,it can be further processed at a cost of $12,000 and converted into 12,000 units of Deluxe and 6,000 units of Super.The selling price of Deluxe and Super are $30 and $20,respectively.The incremental income of processing further would be:

A) $40,000.
B) $28,000.
C) $18,000.
D) $44,000.
E) $12,000.

F) None of the above
G) C) and E)

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Question 52

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Chang Industries has 2,000 tables that cost $115 each to produce.Each table can be sold as is for $221 or finished with a stain or paint.The cost to add a finish to each table is $75.Finished tables can be sold for $310.Chang should:

A) Finish the table for incremental cost of $190 per table.
B) Sell the unfinished tables for profit of $195 per table.
C) Finish the table for profit of $89 per table.
D) Sell unfinished tables for $106 incremental revenue per table.
E) Finish the table for profit of $14 per table.

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

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Question 53

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Derby Inc.manufactures a product which contains a small motor.The company has always purchased this motor from a supplier for $125 each.Derby recently upgraded its own manufacturing capabilities and now has enough excess capacity (including trained workers) to begin manufacturing the motor instead of buying it.The company prepared the following per unit cost projections of making the motor,assuming that overhead is allocated to the part at the normal predetermined overhead rate of 150% of direct labor cost. $\begin{array}{lr}\text { Direct material } & \$38 \\\text { Direct labor } & 50 \\\text { Overhead (fixed and variable) } & 75 \\\hline\text { Total } & \$ 163 \\\hline \end{array}$ The required volume of output to produce the motors will not require any incremental fixed overhead.Incremental variable overhead cost is $21 per motor.What is the effect on income if Derby decides to make the motors?

Maxim manufactures a hamster food product called Green Health.Maxim currently has 10,000 bags of Green Health on hand.The variable production costs per bag are $1.80 and total fixed costs are $10,000.The hamster food can be sold as it is for $9.00 per bag or be processed further into Premium Green and Green Deluxe at an additional cost.The additional processing will yield 10,000 bags of Premium Green and 3,000 bags of Green Deluxe,which can be sold for $8 and $6 per bag,respectively. -The incremental revenue of processing Green Health further into Premium Green and Green Deluxe would be:

What decision rule should be followed when deciding if a business segment should be eliminated?

A(n)________ is the potential benefit lost by taking a specific action when two or more alternative choices are available.

If the cost to buy a part is less than the direct material,direct labor,and incremental overhead cost of making the part,the company should buy the part.

Logan Company can sell all of the standard and premier products they can produce,but it has limited production capacity.It can produce 6 standard units per hour or 4 premier units per hour,and it has 36,000 production hours available.Contribution margin per unit is $24 for the standard product and $30 for the premier product.What is the most profitable sales mix for Logan Company?

Weng CPAs charges for their services based on the following: Using time and materials pricing,what is the total price for services requiring 8 labor hours and $50 of materials?

Listmann Corp.processes four different products that can either be sold as is or processed further. Listed below are sales and additional cost data: $\begin{array}{l}\begin{array} { l r r c } \text { } & \text { Sales Value with no further } & \text { Additional Processing } & \text { Sales Value after } \\\text { Product } & \text { Processing } & \text { Costs } & \text { further processing } \\\text { Premier } & \$ 1,350 & \$ 900 & \$ 2,700 \\\text { Deluxe } & 450 & 225 & 630 \\\text { Super } & 900 & 450 & 1,800 \\\text { Basic } & 90 & 45 & 180\end{array}\end{array}$ Which product(s) should not be processed further?

A company manufactures two products.Each unit of product X requires 10 machine hours and each unit of product Y requires 4 machine hours.The company's productive capacity is limited to 180,000 machine hours.Each unit of product X sells for $15 and has variable costs of $7.Each unit of product Y sells for $8 and has variable costs of $3.If the company can sell all that it produces of both products,what should the sales mix be?

Wheeler Company can produce a product that incurs the following costs per unit: direct materials,$10; direct labor,$24,and overhead,$16.An outside supplier has offered to sell the product to Wheeler for $45.If Wheeler buys from the supplier,it will still incur 45% of its overhead cost.Compute the net incremental cost or savings of buying.

Minor Electric has received a special one-time order for 1,500 light fixtures (units) at $5 per unit.Minor currently produces and sells 7,500 units at $6.00 each.This level represents 75% of its capacity.Production costs for these units are $4.50 per unit,which includes $3.00 variable cost and $1.50 fixed cost.To produce the special order,a new machine needs to be purchased at a cost of $1,000 with a zero salvage value.Management expects no other changes in costs as a result of the additional production.Should the company accept the special order?

If accepting additional business would cause existing sales to decline,the offer should always be declined.

Factor Co.can produce a unit of product for the following costs: $\begin{array}{l}\begin{array} { l l r } \text {Direct material }& \$8\\\text {Direct labor }&24\\\text {Overhead }&40\\\text {Total product costs per unit }&\$72\\\end{array}\end{array}$ An outside supplier offers to provide Factor with all the units it needs at $46 per unit.If Factor buys from the supplier,the company will still incur 60% of its overhead.Factor should choose to:

Galla Inc.operates in a highly competitive market where the market price for its product is $170 per unit.Galla desires a $15 profit per unit.Galla expects to sell 5,000 units.Additional information is as follows: $\begin{array}{l}\begin{array} { l l r } \text { Variable product cost per unit}&\$15\\\text { Variable administrative cost per unit}&10\\\text { Total fixed overhead}&45,000\\\text { Total fixed administrative}&18,000\end{array}\end{array}$ Using target costing,what is the target cost?

Goodfellow Company had the following results of operations for the past year: A foreign company offers to buy 2,000 units at $5.00 per unit.In addition to variable manufacturing costs,there would be shipping costs of $1,200 in total on these units.Prepare an analysis of this additional business to show whether Goodfellow should take this order.

Pinkin Inc.needs to determine a price for a new phone model.Pinkin desires a 25% markup on the total cost of the phone.Pinkin expects to sell 30,000 phones.Additional information is as follows: $\begin{array}{l}\begin{array} { l l r } \text { Variable product cost per unit}&\$75\\\text { Variable administrative cost per unit}&50\\\text { Total fixed overhead}&85,000\\\text { Total fixed administrative}&65,000\end{array}\end{array}$ Using the total cost method what price should Pinkin charge?

Paxton Company can produce a component of its product that incurs the following costs per unit: direct materials,$10; direct labor,$14,variable overhead $3 and fixed overhead,$8.An outside supplier has offered to sell the product to Paxton for $32.Compute the net incremental cost or savings of buying the component.

JK Company can sell all of the plush and supreme products it can produce,but it has limited production capacity.It can produce 4 plush units per hour or 2 supreme units per hour,and it has 2,000 production hours available.Contribution margin per unit is $214 for the plush product and $300 for the supreme product.What is the total contribution margin if JK chooses the most profitable sales mix?