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Exam 23: Relevant Costing for Managerial Decisions

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Question 81

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Cornish Company had the following results of operations for the past year: $\begin{array}{lrr}\text { sales (20,000 units at \$22 } & \$ 440,000 \\\text { Direct materials and direct labor } & \$ 200,000 \\\text { Overhead (40\% variable) } & 100,000 & \\\text { Selling and administrative expenses (all fixed) } & 92,000 & (392,000) \\\hline \text { Operating income } & & \$ 48,000 \\\hline \hline\end{array}$ A foreign company offers to buy 3,000 units at $17.00 per unit.In addition to variable manufacturing costs,selling these units would increase fixed overhead by $500 and selling and administrative costs by $1,000.If Cornish accepts the offer,its profits will:

A) Decrease by $4,500.
B) Increase by $4,500.
C) Decrease by $300.
D) Increase by $13,500.
E) Increase by $15,000.

F) C) and E)
G) D) and E)

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Question 82

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Variations Company had the following results of operations for the past year: A foreign company offers to buy 700 units at $4 per unit.In addition to variable manufacturing costs,there would be an export cost of $0.30 per unit.Prepare an analysis of this additional business to show whether Variations should take this order.

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Question 83

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A company has already incurred a $55,000 cost in partially producing its three products.Their selling prices when partially and fully processed are shown in the following table with the additional costs necessary to finish their processing.Based on this information,should any products be processed further? $\begin{array} { c c c c } & \text { Unifinished } & \text { Finished } & \text { Further } \\\text { Product } & \text { Selling Price } & \text { Selling Price } & \text { Processing Costs } \\\text { A } & \$ 72 & \$ 108 & \$35 \\\text { B } & 83 & 124 & 42 \\\text { C } & 94 & 141 & 45\end{array}$

If a company has the capacity to produce either 10,000 units of Product A or 10,000 units of Product B; assuming fixed costs are the same,production restrictions are the same for both products,and the markets for both products are unlimited; the company should commit 100% of its capacity to the product that has the higher contribution margin per unit of operating capacity.

Bricktan Inc.makes three products,basic,classic,and deluxe.The maximum Bricktan can sell is 75,000 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 total contribution margin if Bricktan chooses the most profitable sales mix?

A company puts four products through a common production process.This process costs $100,000 each year.The four products can be sold when they emerge from this process at the "split-off point," or processed further and then sold.Data about the four products for the coming period are: Determine which products should be sold at the split-off point and which should be processed further.

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 completed units for $8.00 each.If the company completes the units,what is the impact on income?

Bannister Co.is thinking about having one of its products manufactured by a subcontractor. Currently,the cost of manufacturing 1,000 units is: $\begin{array}{l}\begin{array} { l l r } \text {Direct material }&\$45,000\\\text {Direct labor }&30,000\\\text {Factory ov erhead (30 \% is variable) }&98,000\end{array}\end{array}$ If Bannister can buy 1,000 units from an outside supplier for $100,000,it should:

The cost of equipment purchased by a company last year would be an avoidable cost.