Relevant Cost

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Relevant Cost Questions and Answers

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You are constantly trying to save your company some money. One decision you encounter is a make or buy decision for the new project manager. The make solution has an upfront cost of $25,000 plus $3...
Consider the following information, prepared based on monthly production and sales of 50,000 units: Category Cost per Unit Variable manufacturing costs $8.00 Variable marketing costs $3.00 The fir...
Consider the following information, prepared based on a monthly capacity of 80,000 units: Category Cost per Unit Variable manufacturing costs $24 Fixed manufacturing costs $5 Variable selling cost...
Unearthed Company makes small widgets. The manufacturing costs per unit to produce a widget are as follows: Direct Materials $200 Direct Labour $150 Variable Manufacturing Overhead $125 Fixed Man...
So Hot Ltd has 5,000 units in inventory that cost $1.50 per unit to produce. Due to changing technology, the sales department is having difficulty selling the product. It will cost $2,000 to scrap...
Unrecoverable past costs are always irrelevant in evaluating future business decision alternatives. (i) True (ii) False
Identify all relevant costs or revenue that is applicable to the decision stated below: a. Reject a special order. (i) Contribution margin of the product. (ii) Sales revenue at the split-off point....
List the criteria a firm applies in deciding whether to produce a component part or purchase it in the market.
Flop Company manufactures 10,000 units of widgets for use in its annual production. Costs are direct materials $20,000, direct labor $55,000, variable overhead $45,000, and fixed overhead $70,000....
You are the project manager of a campaign rally that your non-profit holds each year to promote the adoption of greyhounds. You will require the use of a large tent for the week of the rally. You m...
Low-water Sailmakers manufactures sails for sailboats The company has the capacity to produce 25,000 sails per year, and is currently producing and selling 20,000 sails per year. The following inf...
ABS Inc., produces airbag systems that it sells to North American automobile manufacturers. Although the company has a capacity of 150,000 units per year, it is currently producing at an annual rat...
Winnebagel Corp. currently sells 22,000 motor homes per year at $60,000 each, and 8,000 luxury motor coaches per year at $97,000 each. The company wants to introduce a new portable camper to fill o...
Case Hardware sells tiling grout among other products. Their 2017 grout merchandise sales is as follows: Kilograms produced and sold 625,000 kg Sales revenue $4,960,000 Variable manufacturing expe...
XYZ manufactures tote bags. The forecasted income statement for the year before any special orders included sales of $4,000,000 (sales price is $10 per unit.) Manufacturing cost of goods sold is an...
The costs for Clark Equipment to make a part in house are displayed below: Per Unit Direct Materials $3.00 Direct Labor 7.00 Allocated Overhead 10.00 Total Cost $20.00 Moving to an outside vendor...
Autocar Company manufactures automobiles. The red car division sells its red cars for $25,000 each to the general public. The red cars have manufacturing costs of $12,500 each for variable and $5,0...
Mountain Air Limited manufactures a line of room air purifiers. Management is currently evaluating the possible production of an air purifier for automobiles. Based on an annual volume of 10,000 un...
At the end of the year, a company offered to buy 4,750 units of a product from X Company for a special price of $11.00 each instead of the company's regular price of $19.00 each. The following info...
X Company currently makes a part and is considering buying it next year from a company that has offered to supply it for $16.33 per unit. This year, total costs to produce 59,000 units were: Direc...
Sutter Company can produce two products, Blenders, and Electric Mixers. The company has assembled the cost data per unit pertaining to the two products: Blender Electric Mixer Selling price $20.00...
Princeton Manufacturing Company summarizes the following total cost data for the month of March. Princeton has a normal capacity per month of 25,000 units of product that sell for $40 each. For the...
Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has always produced all of the necessary parts for its engines, including all of the carburetors. An ou...
One of your coworkers notes, 'This whole subject of differential costing is easy; variable costs are the only costs that are relevant.' How should you respond?
Should facility sustaining costs be considered in making a short term pricing decisions?
Rick Nicotera sells special terra-cotta trays that are perfect for planting in dry climates. The trays have per-unit variable production cost of $15 and fixed cost of $4 (based on 8,000 units). Ric...
Brand X Computers makes and sells computers. Each computer sells for $400. The following cost data per computer are based on a full capacity of 10,000 computers each period: Direct materials $150 D...
In evaluating special orders, a producer should consider: a. variable factory overhead. b. None of these. c. fixed factory overhead. d. no factory overhead. e. all factory overhead.
Factor Co. can produce a unit of product for the following costs: Direct material $7.60 Direct labor 23.60 Overhead 38.00 Total costs per unit $69.20 An outside supplier offers to provide Factor wi...
1. What are the similarities between learning how to discern what costs are relevant and the decision-making process? 2. What character traits are relevant for leadership?
Calla Company produces skateboards that sell for $69 per unit. The company currently has the capacity to produce 95,000 skateboards per year but is selling 80,400 skateboards per year. Annual costs...
Glass company manufactures glasses that it sells to mail-order distributors. Sales price per pair of glasses: $60 Manufacturing and other costs follow: Variable Cost per unit Direct Materials $1...
What is a cost allocation and how are primary costs allocated to secondary costs?
A company can manufacture 490,000 units per year at a variable cost of $15 per unit and at fixed costs of $500,000. The company budgeted that it can sell 400,000 units at $25 per unit. A special or...
CM Manufacturing has provided the following unit costs pertaining to a component they manufacture and use in the production of one of their main products: Direct materials $420 Direct labor (varia...
A few members in the Circular Club do not want to continue with annual rodeo. However, Shelly is insistent the club must continue to conduct the rodeo as an annual fundraiser. Shellley aegues she h...
Delta Screen Corporation is currently operating at 60% of capacity and producing 6,000 screens annually. The normal selling price is $750 per screen. They recently received an offer from a company...
Do you think the statement 'management decisions must always be based on information that is objective and verifiable' is correct? Justify your answer with specific examples.
A common mistake managers make in deciding to close a division is: a. Allowing allocated fixed costs to influence the decision. b. Allowing qualitative issues to influence the decision. c. Allow...
FOX Furniture received a special order for 10 dining room sets for a special price of $5,000. The materials and direct labor for each dining room set is $150. In addition, the setup, supervision an...
Wilmington Chemicals produces a chemical, PX44, which is used to retard fading in exterior house paint. In the past year, the company produced 200,000 gallons at a total cost of $1,200,000 ($6 per...
Relevant costs for a make-or-buy decision for a component part include all of the following except: a. Fixed salaries that will not be incurred if the part is outsourced. b. Payroll tax (unemploy...
An avoidable cost is a cost that can be eliminated (in whole or in part) as a result of choosing one alternative over another. True False
Costs that are always relevant in decision-making are: a. future costs. b. fixed costs. c. avoidable costs. d. sunk costs.
Data pertaining to a company's joint production for the current period follows: L M Quantities produced 280 lbs. 210 lbs. Market value at split-off point $ 9.00 /lb. $ 18.00 /lb. Compute...
Why might a business logically continue to make a product when it could be acquired externally at a cheaper total unit price?
A catering business has around 60% regular corporate clients and 40% casual clients that order on an ad-hoc basis. The manager has been approached by a hotel to provide meals for six months while t...
On December 31, 2005, Brown Co. had a machine with an original cost of $90,000, accumulated depreciation of $75,000, and an estimated salvage value of zero. On December 31, 2005, Brown was consider...
Part T00 is used in one of Able Corporation's products. The company makes 6,000 units of this part each year. The company's Accounting Department reports the following costs of producing the part a...
What are the costs that the manager does not have the power to determine or at least significantly affect?
Manson Industries incurs unit costs of $8 ($5 variable and $3 fixed) in making an assembly part for its finished product. A supplier offers to make 10,400 of the assembly part at $6 per unit. If th...
A company is planning to introduce a new portable TV to its existing product line. Management must decide whether to make the TV case or buy it from an outside supplier. The lowest outside price is...
Down Home Jeans Co. has an annual plant capacity of 64,000 units, and current production is 45,300 units. Monthly fixed costs are $40,800, and variable costs are $25 per unit. The present selling p...
Mason Transport Company divides its operations into four divisions. A recent income statement for its West Division follows. MASON TRANSPORT COMPANY West Division Income Statement for the Year 2...
Which of the following costs is not relevant in a special-order decision? A. Direct labor B. Direct materials C. Variable overhead D. Fixed overhead
Everest Everwear Corporation can manufacture mountain climbing shoes for $17.82 per pair in variable raw material Costs and $12.05 per pair in variable labor expense. The shoes sell for $95 per pai...
Compare and contrast the following types of economic evaluation, and provide an example of each: A) Cost of illness studies B) Cost identification C) Cost minimization studies D) Cost consequence a...
Which of the following is relevant to Kitchenware.com's decision to accept a special order at a lower sale price from a large customer in China? a. The cost of shipping the order to the customer b....
Explain the difference between relevant costs, irrelevant costs, and sunk costs.
Louisville Corporation produces baseball bats for kids that it sells for $32 each. At capacity, the company can produce 50,000 bats a year. The costs of producing and selling 50,000 bats are as fol...
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