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Exam 23: Relevant Costing for Managerial Decisions

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Question 21

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Shale Remodeling uses time and materials pricing.It is setting prices for next year using the following information: What should Shale set as rate per hour of labor hour?

A) $250.
B) $200.
C) $150.
D) $225.
E) $180.

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

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Question 22

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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?

A) Total cost times markup percentage.
B) Total cost per unit times markup percentage per unit.
C) Total cost per unit divided by markup percentage per unit.
D) Markup percentage per unit divided by total cost per unit.
E) Markup percentage divided by total cost.

F) None of the above
G) A) and B)

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Question 23

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Mays Company can sell all of product A that it produces but only 160,000 units of product Z.The company has limited production capacity.It can produce 6 units of A per hour or 10 units of Z per hour,and it has 30,000 production hours available.Contribution margin per unit is $12 for A and $10 for Z.What is the most profitable sales mix for this company?

Janko Wellspring Inc.has a pump with a book value of $24,000 and a four-year remaining life.A new,more efficient pump,is available at a cost of $45,000.Janko can also receive $8,000 for trading in the old pump.The new pump will reduce variable costs by $10,000 per year over its four-year life.The costs not relevant to the decision of whether or not to replace the pump are:

Jaybird Company operates in a highly competitive market where the market price for its product is $50 per unit.Jaybird desires a $15 profit per unit.Jaybird expects to sell 5,000 units.Additional information is as follows: $\begin{array}{l}\begin{array} { l l r } \text { Variable product cost per unit}&\$15\\\text { Variable administrative cost per unit}&10\\\text { Total fixed overhead}&45,000\\\text { Total fixed administrative}&18,000\end{array}\end{array}$ To achieve the target cost per unit,Jaybird must reduce total expenses by how much?

A sunk cost will change with a future course of action.

Carly's Clips charges for their grooming services based on the following: $\begin{array}{l}\begin{array} { l l r } \text {Direct labor rate} &\$ 60 per hour\\\text {Materials markup}&30 \%\\\end{array}\end{array}$ Using time and materials pricing,what is the total price for a job requiring 3 direct labor hours and $50 of materials?

The total cost method determines a selling price equal to a product's total costs plus a desired profit on the product.

Shale Remodeling uses time and materials pricing.It is setting prices for next year using the following information: What should Shale set as the materials markup per dollar of materials used?

A company has the choice of either selling 600 apples or processing them into applesauce.The company could sell the apples as they are for $2.00 per unit.Alternatively,each apple could be made into one unit of applesauce with incremental costs of $0.60 per unit for direct materials,$1.00 per unit for direct labor,and $0.80 per unit for overhead,and then sold for $5.00 each. -What is the amount of incremental income (loss) from processing the apples into applesauce?

Bricktan Inc.makes three products,basic,classic,and deluxe.The maximum Bricktan can sell is 715,000 units of basic,420,000 units of classic,and 120,000 units of deluxe.Bricktan has limited production capacity of 90,000 hours.It can produce 10 units of basic,8 units of classic,and 4 units of deluxe per hour.Contribution margin per unit is $15 for the basic,$25 for the classic,and $55 for the deluxe.What is the most profitable sales mix for Bricktan Inc.?

Elliot Company can sell all of its products A and Z that it can produce,but it has limited production capacity.It can produce 8 units of A per hour or 10 units of Z per hour,and it has 20,000 production hours available.Contribution margin per unit is $12 for A and $10 for Z.What is the most profitable sales mix for Elliot Company?

A company has the choice of either selling 1,000 unfinished units as is or completing them.The company could sell the unfinished units as is for $4.00 per unit.Alternatively,it could complete the units with incremental costs of $1.00 per unit for direct materials,$2.00 per unit for direct labor,and $1.50 per unit for overhead,and then sell the finished units for $8.00 each.What should the company do?

The concept of incremental cost is the same as the concept of differential cost.

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 most profitable sales mix for JK Company?

Spilker Linens Store has three departments: Bath,Kitchen,and Bedding.The most recent income statement,showing the total operating profit and departmental results is shown below: Based on this income statement,management is planning on eliminating the Bedding department,as it is generating a net loss.If the Bedding department is eliminated,the Kitchen department will expand to fill the space,but sales will not change in total,nor will direct expenses.None of Bedding's allocated expenses will be avoided,but they will be reallocated to Bath and Kitchen.Bath will be allocated $100,000 additional expenses,and Kitchen will be allocated $75,000 additional expenses.Prepare a new income statement for Spilker Linens Store,showing the results if the Bedding Department is eliminated and indicate whether eliminating the department is advisable.

Riener Hospital has an x-ray machine with a book value of $60,000 and a remaining useful life of three years.At the end of the three years the equipment will have a zero salvage value.The market value of the equipment is currently $32,000.Riener can purchase a new machine for $145,000 and receive $28,000 in return for trading in its old machine.The new machine will reduce variable manufacturing costs by $27,000 per year over the three-year life of the new machine.The total increase or decrease in net income by replacing the current machine with the new machine (ignoring the time value of money) is:

An additional cost incurred only if a company pursues a particular course of action is a(n) :

Rosie's Company has three products,P1,P2,and P3.The maximum Rosie's can sell is 65,000 units of P1,24,000 units of P2,and 12,000 units of P3.Rosie's has limited production capacity of 9,000 hours.It can produce 12 units of P1,6 units of P2,and 3 units of P3 per hour.Contribution margin per unit is $5 for the P1,$15 for the P2,and $25 for the P3.What is the most profitable sales mix for Rosie's Company?

Markson Company had the following results of operations for the past year: $\begin{array}{lrr}\text { Sales }(8,000 \text { units at } \$ 20) & & \$ 160,000 \\\text { Variable manufacturing costs } & \$ 86,000 & \\\text { Fixed manufacturing costs } & 15,000 & \\\text { Variable administrative expenses } & 12,000 & \\\text { Fixed selling and administrative expenses } & 20,000 & (133,000) \\\hline\text {Operating income}&&\$ 27,000 \\\hline\end{array}$ A foreign company offers to buy 2,000 units at $14 per unit.In addition to variable manufacturing and administrative costs,selling these units would increase fixed overhead by $1,600 for the purchase of special tools.Markson's annual productive capacity is 12,000 units.If Markson accepts this additional business,its profits will: