210220830 Relevant Costing by a Bobadilla

Incremental Analysis

89! One o$ t#e 'e#a-iora, pro',ems pro',ems (it# re,e-ant cost ana,&sis ana,&sis is t#e o-eremp#asis o-eremp#asis on s#ort1term goa,s5 (#ic# can ,ead to neg,ect o$: A! sa,es promotion promotion C! ;)arter,& net income income res),ts B! e*pen e*pense se contro contro,, D! ,ong ,ong1term 1term stra strategic tegic goa,s Steps in decision making process ! "#at is t#e t#e $irst step step in t#e decisi decision on making making proces process% s% A! Speci$& t#e criteria criteria '& (#ic# t#e decision decision is to 'e made! made! B! Consider t#e strategic strategic iss)es regarding t#e decision decision conte*t! conte*t! C! +er$orm an ana,&sis ana,&sis in (#ic# t#e re,e-ant re,e-ant in$ormation in$ormation is de-e,oped de-e,oped and ana,&.ed! ana,&.ed! D! Compare Compare t#e a,ternatia,ternati-es! es!

Incrementa, ana,&sis 8! Incrementa, ana,&sis ana,&sis is t#e process process o$ identi$&ing t#e $inancia, $inancia, data t#at: A! do not c#ange )nder )nder a,ternati-e co)rses co)rses o$ action action B! are mi*ed mi*ed )nder )nder a,ternati-e a,ternati-e co)rse co)rsess o$ action C! c#an c#ange ge )nder )nder a,ternatia,ternati-ee co)rses co)rses o$ action action D! no corre correct ct ans(er ans(er is gi-en gi-en

/! A ma0or acco)nting acco)nting contri')tion ')tion to t#e manageria manageria,, decision1mak sion1making ing process process in e-a,)ating )ating possi',e co)rses o$ action is to A! assign responsi'i,it& responsi'i,it& $or t#e decision! decision! B! pro-ide re,e-ant re,e-ant re-en)e re-en)e and cost cost data a'o)t a'o)t eac# co)rse co)rse o$ action! action! C! determine t#e amo)nt o$ mone& mone& t#at s#o),d s#o),d 'e spent spent on a pro0ect! pro0ect! D! decide (#ic# (#ic# actions actions t#at t#e management s#o),d consider! consider!

92! Incrementa, ana,&sis is most )se$), A! in e-a,)ating t#e master master ')dget! B! in c#oosing c#oosing 'et(een t#e net present -a,)e -a,)e met#od and t#e interna, interna, rate o$ ret)rn ret)rn met#od! C! in de-e,oping de-e,oping re,e-ant re,e-ant in$ormation in$ormation $or management management decisions! decisions! D! as a rep,acement tec#ni;)e $or -ariance -ariance ana,&sis! ana,&sis! Re,e-ant in$ormation 8! +redicted $)t)re $)t)re cost and re-en)e re-en)e data t#at (i,, di$$er among among a,ternati-e a,ternati-e co)rses o$ action are kno(n as A! re,e-ant in$ormation in$ormation C! margin margina, a, costs costs B! direct in$ormation D! incrementa, costs

2! An ana,&sis ana,&sis o$ re,e-ant re,e-ant costs costs and re,e-a re,e-ant nt re-en)es re-en)es A! "i,, ena',e t#e decision decision maker to assess assess a decision3s decision3s impact on pro$it B! Is )se$), in assessing assessing a -ariet& o$ a,ternati-e decisions decisions C! +ro-ides s)$$icient s)$$icient and comp,ete e-idence e-idence (it# (#ic# (#ic# to make make a decision decision D! Ans( Ans(ers ers a! a! and '! '! are corre correct ct

9! "#ic# o$ t#e $o,,o(ing is descri'ed as as data t#at are are pertinent to a decision% decision% A! ;)a,itati-e c#aracteristics c#aracteristics C! time,& in$ormation B! acc)r acc)rate ate in$or in$ormat mation ion D! re,e-ant e -ant in$orma in$ormatio tionn

+it$a,,s in decision making 4! "#en disc)ssing disc)ssing t#e pit$a,,s pit$a,,s to 'e a-oided a-oided in decision1making decision1making55 $o)r reminders reminders )s)a,,& emerge! "#ic# is NOT one o$ t#ose reminders% A! Ignore s)nk costs! costs! B! Be(are o$ o$ a,,ocated $i*ed costs costs identi$& t#e a-oida',e a-oida',e costs! costs! C! +a& specia, specia, attention to identi$&ing identi$&ing and inc,)ding inc,)ding opport)nit& opport)nit& costs! costs! D! Do not o-er,ook o-er,ook t#e time -a,)e o$ mone& mone& in s#ort1r)n s#ort1r)n decisions! decisions!

6! "#ic# o$ o$ t#e $o,,o(ing 'est descri'es descri'es re,e-ant in$ormation% A!
47! "#ic# one o$ t#e $o,,o(ing is not a common mistake mistake in a decision1making process% process% A! Considering Considering s)nk costs as re,e-ant! B! Considerin Consideringg opport)nit& opport)nit& cost5 cost5 an imp)ted cost5 cost5 'eing 'eing re,e-ant! re,e-ant! C! Considering Considering $i*ed costs as a-oida',e a-oida',e $i*ed $i*ed costs! costs! D! Uniti Uniti.in .ingg $i*ed $i*ed costs! costs!

App,ication o$ incrementa, incrementa, ana,&sis ana,&sis =! Incremen Incrementa, ta, ana,&sis ana,&sis (o),d (o),d not 'e appropri appropriate ate $or A! a make or ')& decision! decision! B! an a,,ocation a,,ocation o$ ,imited ,imited reso)rc reso)rcee decision! decision! C! e,iminati e,imination on o$ an )npro$it )npro$ita',e a',e segmen segment! t! 11


D! ana,&sis &sis o$ man)$ac man)$act)rin t)ringg -ariances -ariances!! 46! Re,e-ant Re,e-ant costs costs are are A! a,, $i*ed and -aria',e -aria',e costs B! a,, costs t#at t#at (o),d 'e inc)rred (it#in (it#in t#e re,e-ant re,e-ant range o$ o$ prod)ction C! past costs costs t#at are are e*pected e*pected to 'e di$$erent in t#e $)t)re D! anticipated $)t)re costs costs t#at (i,, di$$er among among -ario)s -ario)s a,ternati-es a,ternati-es

S)nk costs 7! T#e kind o$ cost t#at can 'e ignored in a s#ort1term s#ort1term decision making is a>an? A! di$$erentia, cost cost C! s) s)nk nk co cost st B! incrementa, cost D! 0oint cost

49! T#e ea,t# Care Di-ision o$ +iedmont Ins)rance Ins)rance emp,o&s t#ree c,aims processors processors capa',e capa',e o$ processing processing 5@@@ c,aims eac#! T#e di-ision c)rrent,& c)rrent,& processes 485@@@ 485@@@ c,aims! T#e manager #as recent,& 'een approac#ed approac#ed '& t(o sister di-isions! A)to Di-ision (o),d ,ike t#e ea,t# Care Di-ision to process appro*imate,& appro*imate,& 85@@@ c,aims! +ropert& Di-ision (o),d ,ike t#e ea,t# Care Di-ision to process appro*imate,& appro*imate,& 5@@@ c,aims! T#e ea,t# Care Di-ision (o),d (o),d 'e compensated compensated '& A)to Di-ision or +ropert& +ropert& Di-ision $or processing processing t#ese c,aims! Ass)me t#at t#ese are m)t)a,,& e*c,)si-e a,ternati-es! a,ternati-es! C,aims processor processor sa,ar& cost is re,e-ant $or A! A)to Di-ision a,ternati-e a,ternati-e on,& B! +rop +ropert& ert& Di-isi Di-ision on a,ternat a,ternati-e i-e on,& on,& C! 'ot# A)to Di-ision Di-ision and and +ropert& +ropert& Di-ision Di-ision a,ternati-es a,ternati-es D! neit#er A)to Di-ision Di-ision nor nor +ropert& +ropert& Di-ision Di-ision a,ternati-es a,ternati-es

=@! S)nk costs costs are are A! Costs t#at increase d)e to a #ig#er -o,)me o$ acti-it& or t#e per$ormance o$ an additiona, acti-it& B! Costs Costs t#at a compan& m)st m)st inc)r to per$orm per$orm an acti-it& at a gi-en ,e-e,5 ,e-e,5 ')t (i,, not 'e inc)rred i$ a compan& red)ces or discontin)es t#e acti-it& C! T#e pro$its t#at t#at a compan& compan& $orgoes '& '& $o,,o(ing a partic),ar co)rse co)rse o$ action action D! Costs t#at t#at (ere inc)rred prior to making a decision ==! A s)nk s)nk cost cost is: A! a cost inc)rred inc)rred in t#e past and not re,e-ant re,e-ant to an& $)t)re $)t)re co)rse o$ action! action! B! an opp opport ort)ni )nit& t & cost cost!! C! )se$), )se$), in ana,&sis ana,&sis o$ a,ternati-e a,ternati-e co)rses co)rses o$ action! action! D! re,e-ant re,e-ant to c)rren c)rrentt decision decision making! making!

Di$$erentia, costs =4! T#e di$$erence in cost 'et(een 'et(een or among -ario)s a,ternati-e a,ternati-e co)rses co)rses o$ action appropriate,& descri'es a>an?: A! di$$erentia, cost cost C! cons constr trai aint nt B! ad #oc disco)nt D! scarce reso)rce

4=! "#ic# o$ t#e $o,,o(ing is ,east ,east ,ike,& to 'e a re,e-ant item in deciding (#et#er (#et#er to rep,ace an o,d mac#ine% A! ac;)isition cost cost o$ t#e o,d mac#ine B! o)t,a& o)t,a& to 'e made $or t#e t#e ne( mac#ine mac#ine C! ann)a, ann)a, sa-ings sa-ings to 'e en0o&ed en0o&ed on t#e ne( mac#ine mac#ine D! ,i$e ,i$e o$ t#e t#e ne( ne( mac#in mac#inee

Opport)nit& cost 4@! An important concept concept in decision making is descri'ed descri'ed as t#e contri')tion contri')tion to income t#at is $orgone '& not )sing a ,imited reso)rce in its 'est a,ternati-e )se! T#is concept is ca,,ed A! Margina, cost cost C! Incrementa, cost cost B! Cost Cost o)t o)t,a ,a&& D! Opp Opport ort)ni )nit& t & cost cost

Unit costs 88! Unit costs can mis,ead mis,ead decision makers! makers! "#ic# o$ t#e $o,,o(ing sit)ations sit)ations dea,ing (it# )nit costs are not e*pected to res),t in a $a),t& ana,&sis% A! Unit costs )sed in make1or1') make1or1')&& decisions mig#t inc,)de costs s)c# as a-oida',e $i*ed costs! B! aria',e aria',e )nit cost direct,& direct,& -aries -aries (it# t#e c#anges c#anges in prod)ction )nits! )nits! C! Tota, Tota, $i*ed costs increase increase as more )nits )nits are prod)ced prod)ced (it#in t#e re,e-ant re,e-ant range! D! Contri')tion margin margin on prod)cts prod)cts t#at can 'e man)$act)red in )sing t#e $reed $reed capacit& is irre,e-ant in t#e decision!

44! 44! An A! B! C! D!

opport) opport)nit& nit& cost cost is t#e di$$erence in tota, tota, costs t#at res),ts res),ts $rom se,ecting one one a,ternati-e instead instead o$ anot#er t#e pro$it $orgone '& '& se,ecting one a,ternati-e a,ternati-e instead o$ anot#er a cost t#at ma& 'e sa-ed sa-ed '& not not adopting an a,ternati-e a,ternati-e a cost t#at ma& 'e s#i$ted s#i$ted to t#e $)t)re $)t)re (it# ,itt,e or no e$$ect on c)rrent operations operations

48! T#e 'est c#aracteri.ation c#aracteri.ation o$ an opport)nit& opport)nit& cost is t#at t#at it is A! re,e-ant to decision decision making ')t is not not )s)a,,& re$,ected re$,ected in acco)nting records records 12


B! not re,e-ant re,e-ant to decision making and is not )s)a,,& )s)a,,& re$,ected in acco)nting acco)nting records C! re,e-ant to decision decision making making and is )s)a,,& re$,ected re$,ected in acco)nting acco)nting records records D! not re,e-ant re,e-ant to decision making and is )s)a,,& re$,ected in acco)nting acco)nting records records

B! II

87! A-oida', da',e costs are are A! Costs t#at increase d)e to a #ig#er -o,)me o$ acti-it& or t#e per$ormance o$ an additiona, acti-it& B! Cos Costs ts t#at a compan& m)st m)st inc)r to per$orm per$orm an acti-it& at a gi-en ,e-e,5 ,e-e,5 ')t (i,, not 'e inc)rred i$ a compan& red)ces or discontin)es t#e acti-it& C! T#e pro$its t#at a compan& compan& $orgoes '& $o,,o(ing a partic),ar co)rse co)rse o$ action action D! Costs t#at t#at (ere inc)rred prior to making a decision

42! T#e potentia, 'ene$it t#at ma& 'e o'tained $rom $o,,o(ing $o,,o(ing an a,ternati-e co)rse o$ action action is ca,,ed A! opport)nit& 'ene$it 'ene$it C! re,e-ant cost B! opp opport ort)ni )nit& t & co cost st D! s)nk s)nk cost cost 86! Opport)n Opport)nit& it& cost cost is t#e A! cas# o)t,a& re;)ired re;)ired to imp,ement imp,ement an a,ternati-e! B! di$$erenc di$$erencee in tota, costs 'et(een 'et(een t#e a,ternatia,ternati-es! es! C! ma*im)m a-ai,a',e a-ai,a',e contri')tion to pro$it pro$it t#at is gi-en )p (#en (#en )sing ,imited reso)rces reso)rces $or anot#er p)rpose! D! $i*ed cost a-oided (#en (#en a prod)ct5 prod)ct5 department5 or ')siness )nit )nit is a'andoned! a'andoned!

O)t1o$1pocket O)t1o$1pocket costs 8=! "#ic# o$ t#e $o,,o(ing is a cost cost t#at re;)ires a $)t)re o)t,a& o$ cas# t#at t#at is re,e-ant $or $)t)re decision1making% A! Opport)nit& cost cost C! O)t O)t1o$ 1o$1p 1pock ocket et cost cost B! Re,e-ant 'ene$its D! Incrementa, re-en)e

82! Opport)n Opport)nit& it& costs costs are A! Costs t#at increase d)e to a #ig#er -o,)me o$ acti-it& or t#e per$ormance o$ an additiona, acti-it& B! Costs Costs t#at a compan& m)st m)st inc)r to per$orm per$orm an acti-it& at a gi-en ,e-e,5 ,e-e,5 ')t (i,, not 'e inc)rred i$ a compan& red)ces or discontin)es t#e acti-it& C! T#e pro$its t#at t#at a compan& compan& $orgoes '& '& $o,,o(ing a partic),ar co)rse co)rse o$ action action D! Costs t#at t#at (ere inc)rred prior to making a decision

8@! Sensiti-it& ana,&sis ana,&sis is )se$), in decision decision making (#en: (#en: A! t#ere is a degree degree o$ )ncertaint& a'o)t a'o)t t#e re,e-ant data! data! B! t#ere is an opport)nit& opport)nit& cost cost inc,)ded inc,)ded in t#e ana,&sis! ana,&sis! C! s)nk cost cost is inc,)ded inc,)ded in t#e ana,&si ana,&sis! s! D! t#e ana,&sis ana,&sis is s)'0ect s)'0ect to a re-ie( re-ie( '& t#e management! management! 84! To determine determine t#e possi',e o)tcome in a decision ana,&sis i$ a ke& prediction or ass)mption pro-es to 'e (rong5 managers (i,, )se: A! sensiti-it& ana,&sis! ana,&sis! C! incremen incrementa, ta, ana,&sis! &sis! B! tota, ana,&sis! D! regression ana,&sis!

8/! Using opport)nit& cost cost to ana,&.e t#e income e$$ects o$ a gi-en a,ternati-e a,ternati-e is re$erred to as A! engineering ana,&sis ana,&sis C! acco)nt ana,&sis ana,&sis B! mi*ed1 mi*ed1cos costt ana,&s ana,&sis is D! di$ di$$er $erent entia, ia, ana,&si & sis A-oida',e 4! A $i*ed cost cost is re,e-ant re,e-ant i$ it is A! $)t)re cost B! s) s )nk

D! II and and III III

)a,itati-e Considerations Considerations =2! "#ic# "#ic# o$ t#e $o,,o(ing $o,,o(ing e,ements e,ements o$ t#e -a,)e c#ain s#o),d 'e considered considered (#en deciding deciding (#et#er to make or ')& a component needed $or prod)ction% A! Marketing C! Man)$act)ring B! Dist Distri ri') ')ti tion on D! a,, o$ o$ t#ese t#ese c# c#oic oices es

C! a-oi a-oida', d a',e D! a prod)ct cost

4/! "#ic# "#ic# o$ t#e $o,,o(ing ng is >are? >are? a tr)e statement> statement>s? s? a'o)t cost 'e#a-iors 'e#a-iors in incremen incrementa, ta, ana,&sis% I!
Make decision =9! Man)$act)ring parts parts interna,,& '& a compan& ca)ses: ca)ses: A! t#e compan& to 'e 'e dependent )pon )pon s)pp,iers $or time,& time,& de,i-er& o$ parts parts B! t#e ;)a,it& o$ t#e parts parts to 'e 'e )nder t#e contro, o$ t#e compan& compan& 13


C! ,o(er ,o(er parts parts costs costs to 'e ass)r ass)red ed D! a compan&Fs compan&Fs operation operationss to 'e more e$$icient e$$icient t#an (#en t#e parts are p)rc#as p)rc#ased ed $rom s)pp,iers

D! On,& con-e con-ersio rsionn costs are are re,e-ant re,e-ant!! Opport)nit& costs =7! In a make1or1')& make1or1')& decision5 (#ic# (#ic# o$ t#e $o,,o(ing is tr)e% tr)e% A! aria',e aria',e costs are t#e on,& on,& re,e-ant costs! costs! B! A,,ocated A,,ocated $i*ed *ed costs costs are are re,e-ant! re,e-ant! C! A,ternati-e )ses o$ space and and mac#iner& mac#iner& are re,e-ant! D! Making t#e prod)ct prod)ct is t#e t#e correct decision (#en (#en t#ere is id,e capacit&! capacit&!

99! A compan& s#o),d s#o),d decide to make5 rat#er t#an ')&5 ')&5 a part re;)ired $or t#eir prod)ct5 prod)ct5 i$ A! T#e compan&3s compan&3s prod)ction $aci,it& $aci,it& is at $),, capacit& capacit& B! T#e re,e-ant re,e-ant cost cost per1)nit per1)nit o$ making ng t#e part e*ceeds e*ceeds t#e per1)nit per1)nit re,e-ant re,e-ant costs costs o$ p)rc#asing t#e part C! T#e s)pp,ier s)pp,ier o$ t#e part can prod)ce a #ig#er1;)a,it& #ig#er1;)a,it& part D! T#e s)pp,ier s)pp,ier o$ t#e part part #as ;)estiona',e re,ia'i,it&

9@! T#e opport)nit& cost cost o$ making a component component part in a $actor& (it# e*cess capacit& capacit& $or (#ic# t#ere is no a,ternati-e )se is A! t#e tota, man)$act)ring man)$act)ring cost o$ t#e component! component! B! t#e tota, tota, -aria',e -aria',e cost cost o$ t#e t#e componen component! t! C! t#e $i*ed $i*ed man)$act) man)$act)ring ring cost cost o$ t#e component! component! D! .ero!

B)& decision =! In an& make or ')& decision con$ronting con$ronting a compan&5 compan&5 (#ic# o$ t#e $o,,o(ing $actors s#o),d 'e considered% A! Can t#e s)pp,ier pro-ide a s)$$icient ;)antit& to meet t#e compan&Fs c)rrent and $)t)re needs% B! Do t#e s)pp,ierFs items meet prod)ct and and ;)a,it& speci$ications% speci$ications% C! Is t#e t#e s)pp,ie s)pp,ierr re,ia', re,ia',e% e% D! A,, o$ t#e a'o-e a'o-e s#o),d s#o),d 'e cons considere idered! d!

96! T#e cost o$ not recei-ing rent rent $rom a space 'eca)se 'eca)se &o) decide to make t#e part rat#er rat#er t#an ')&ing it $rom an o)tside s)pp,ier is considered a>an? A! s)nk cost C! opp opport ort)ni )nit& t & cos costt B! $)t)re cost D! $i*ed cost

94! "#ic# o$ t#e $o,,o(ing ;)a,itati-e $actors $actors $a-ors t#e ')& c#oice in a make or ')& decision decision $or a part% A! maintaining a ,ong1term ,ong1term re,ations#ip re,ations#ip (it# s)pp,iers B! ;)a,it& it& contro, contro, is critica, ca, C! )ti,i.ation .ation o$ id,e capacit& capacit& D! part is critic critica, a, to prod)ct prod)ct

9/! In a make1or1')& decision5 decision5 an opport)nit& cost t#at s#o),d s#o),d 'e considered is t#e: A! income t#at co),d 'e generated $rom $rom id,e prod)ction space! space! B! tota, costs costs to prod) prod)ce ce t#e t#e item item C! -aria',e a',e costs costs to prod)ce prod)ce t#e t#e item D! $i*ed $i*ed costs costs to prod) prod)ce ce t#e item

Re,e-ant costs
Decision r),e 98! ari'on Compan& is $aced (it# a make1or1')& make1or1')& decision! ari'on ari'on s#o),d agree to ')& t#e part $rom a s)pp,ier pro-ided t#e price is ,ess t#an ari'on3s A! tota, costs B! -aria',e prod)ction costs p,)s p,)s a-oida',e a-oida',e $i*ed prod)ction costs C! tota, man)$act) man)$act)ring ring costs costs D! -aria -aria',e ',e costs costs

=/! In a make or ')& ')& decisio decision: n: A! On,& -aria',e costs costs are re,e-ant! re,e-ant! B!
29! A compan& o(ns e;)ipment e;)ipment t#at is )sed to man)$act)re important parts $or its prod)ction prod)ction process! T#e compan& p,ans to se,, t#e e;)ipment $or +4@5@@@ and to se,ect one o$ t#e $o,,o(ing a,ternati-es: >4? ac;)ire ne( e;)ipment e;)ipment $or +2@5@@@ 14


>8? p)rc#ase t#e important important parts $rom an o)tside compan& at +9 per part! part! T#e compan& compan& s#o),d ;)antitati ;)antitati-e,& -e,& ana,&.e ana,&.e t#e a,ternatia,ternati-es es '& comparing comparing t#e cost o$ man)$act)re t#e parts A! +,)s +2@5@@@ to t#e cost cost o$ ')&ing t#e parts parts ,ess +4@5@@@! B! to t#e cost cost o$ ')&ing ')&ing t#e parts parts ,ess +4@5@@ +4@5@@@! @! C! Less +4@5@@ +4@5@@@@ to t#e cost cost o$ ')&ing ')&ing t#e parts! parts! D! To t#e cost cost o$ ')&ing ')&ing t#e t#e parts! parts!

B! Marke Marketin tingg costs costs

D! A,, o$ t#e a'o a'o-e -e

Opport)nit& costss @! An opport)nit& cost cost common,& associated associated (it# a specia, specia, order is A! t#e contri')tion margin margin on ,ost sa,es B! t#e -aria -aria',e ',e costs costs o$ t#e order order C! additiona, $i*ed $i*ed cost t#at is re,ated to t#e increased increased o)tp)t o)tp)t D! an& an& o$ t#e t#e a'o a'o-e -e

+rocess 97! In making a specia, specia, order decision5 decision5 management s#o),d: s#o),d: A! comp)te a reasona',e reasona',e sa,es price price $or items not norma,,& norma,,& prod)ced! prod)ced! B! consider consider additi additiona, ona, o-er# o-er#ead ead cost! cost! C! consider consider norma, norma, and and re,e-ant re,e-ant costs! costs! D! A,, o$ t#e a'o a'o-e! -e!

=! Operating at or near $),, capacit& (i,, re;)ire a $irm considering considering a specia, order to recogni.e t#e: A! opport)nit& cost cost arising $rom ,ost ,ost sa,es B! -a,)e -a,)e o$ o$ $),, emp, emp,o&men o &mentt C! time time -a,)e -a,)e o$ mone mone&& D! need $or good manageme management nt

8! "#ic# o$ t#e $o,,o(ing $actors s#o),d s#o),d 'e considered considered in deciding (#et#er (#et#er to accept a specia, order% A! t#e sa,es price price o$ t#e prod)ct or ser-ice ser-ice B! t#e prod)c prod)ction tion capaci capacit& t& o$ t#e compa compan& n& C! t#e impact impact on reg),a reg),arr c)stomer c)stomerss D! a,, o$ o$ t#ese t#ese c#o c#oice icess

Decision r),e 28! +rod)ction o$ a specia, order (i,, increase increase gross pro$it (#en t#e additiona, additiona, re-en)e $rom t#e specia, order is greater t#an A! T#e non-aria',e non-aria',e costs inc)rred inc)rred in prod)cing prod)cing t#e order! B! T#e direct direct materia, and ,a'or costs in prod)cing t#e order! order! C! T#e $i*ed costs inc)rred inc)rred in prod)cing t#e order! order! D! T#e margina margina,, cost o$ prod)ci prod)cing ng t#e order order!!

Irre,e-ant cost 2=! In considerin consideringg a specia, specia, order order t#at (i,, ena',e ena',e a compan& compan& to make a )se o$ present,& present,& id,e capacit&5 (#ic# o$ t#e $o,,o(ing costs (o),d 'e irre,e-ant! A! Materia,s C! Direct ,a'or B! De Depr prec ecia iatition on D! ari aria' a',e ,e O

4! I$ t#e $irm is operating )nder capacit&5 capacit&5 t#e minim)m specia, order price price s#o),d 'e #ig# eno)g# to co-er: A! a,, -aria',e costs and incrementa, $i*ed costs associated (it# t#e specia, order min)s $oregone contri')tion margin on reg),ar )nits not prod)ced! prod)ced! B! -aria',e and incrementa, incrementa, $i*ed costs costs associated associated (it# t#e specia, specia, order and a pro$it pro$it margin! C! ,imited -aria',e -aria',e costs associated (it# t#e specia, order! order! D! neit#er -aria',e -aria',e nor $i*ed $i*ed costs associated associated (it# t# t#e specia, specia, order!

9! Gi-en Gi-en t#e $o,,o(ing $o,,o(ing ,ist o$ costs5 (#ic# one s#o),d 'e ignored ignored in a decision decision to prod)ce prod)ce additiona, )nits o$ prod)ct $or a $actor& t#at is operating at ,ess t#an 4@@H capacit&5 and t#e additiona, ')siness (i,, not )se )p t#e remainder o$ t#e p,ant capacit&% A! Direct materia, cost cost per )nit C!
/! Green Green Giant
Re,e-ant costs Long1r)n decision 2! T#e sa,es price o$ a prod)ct5 in t#e ,ong r)n5 m)st 'e eno)g# eno)g# to co-er (#at t&pe o$ costs% A! Designing costs costs C! Ser-icing costs costs 15


s)pp,ier! D! ,ess t#an 'ot# t#e cost cost to ,ea-e t#e p,ant p,ant id,e and t#e cost to make make or ')& t#e 'o*es! 'o*es!

desired pro$it! 68! "#ic# "#ic# o$ t#e $o,,o(ing $o,,o(ing is NOT a cost concept concept common,& common,& )sed in app,&ing app,&ing t#e cost1p,) cost1p,)ss approac# to prod)ct pricing% A! Tota, Tota, cost concept! concept! C! aria',e aria',e cost concept! B! +rod)c +rod)ctt cost cost concep concept! t! D!
Minim)m accepta',e price "it# e*cess capacit& ! I$ t#ere is e*cess capacit& capacit&55 t#e minim)m accepta',e accepta',e price $or a specia, order m)st co-er co-er A! -aria',e costs costs associated (it# (it# t#e specia, order! order! B! -aria',e and and $i*ed man)$act)ring man)$act)ring costs costs associated associated (it# t#e specia, specia, order! order! C! -aria',e and and incrementa, incrementa, $i*ed costs associated (it# t#e specia, specia, order! order! D! -aria',e a',e costs costs and incrementa, incrementa, $i*ed costs costs associated ated (it# t#e specia, specia, order p,)s t#e contri')tion margin )s)a,,& earned on reg),ar )nits!

6=! T#e cost1p,)s )s pricing $orm),a t#at takes into consider consideration ation a,, costs costs 11 $i*ed5 -aria',e -aria',e55 and man)$act)ring5 man)$act)ring5 as (e,, as se,,ing and administrati-e costs 11 is ca,,ed t#e percentage o$ A! $),, costs! C! tota, tota, -aria -aria',e ',e costs costs!! B! -aria',e ma man)$act)ring co costs! D! a'sorption co costs!

At $),, capacit& 6! I$ a $irm is at $),, capacit&5 capacit&5 t#e minim)m specia, specia, order price m)st m)st co-er A! -aria',e costs costs associated (it# (it# t#e specia, order! order! B! -aria',e and and $i*ed man)$act)ring man)$act)ring costs costs associated associated (it# t#e specia, specia, order! order! C! -aria',e and and incrementa, incrementa, $i*ed costs associated (it# t#e specia, specia, order! order! D! -aria',e costs costs and incrementa, incrementa, $i*ed costs associated associated (it# t#e specia, order order p,)s $oregone $oregone contri')tion margin on reg),ar )nits not prod)ced!

9! A prod)ct ,i$e c&c,e c&c,e inc,)des inc,)des t#e p#ases o$ A! researc# and and de-e,opment de-e,opment and design B! p)rc#asi p)rc#asing ng and prod)cti prod)ction on

Target pricing 9=! T#e concept concept o$ target pricing pricing is emp,o&ed emp,o&ed (#en: A! a compan& (is#es (is#es to set price in order to capt)re capt)re a predetermined predetermined market s#are! s#are! B! a price price is pre1set pre1set '& market market conditi conditions! ons! C! a compan& compan& (is#es (is#es to meet meet marketing marketing goa,s goa,s!! D! A,, o$ t#e a'o a'o-e! -e! Target cost approac# 64! In contrast to t#e tota, prod)ct and -aria',e cos costt concepts )sed in setting se,,erFs prices5 prices5 t#e target cost approac# ass)mes t#at: A! a mark)p is added added to tota, cost! C! a mark)p is added added to -aria',e cost! cost! B! se,,ing ing price price is set set '& t#e t#e marketp,a marketp,ace! ce! D! a mark)p mark)p is added added to prod) prod)ct ct cost! cost!

C! marketing and distri')tion distri')tion D! a, a,,, o$ t#e t#e a'o a'o-e -e

aria',e cost approac# 6@! Managers Managers (#o o$ten make specia, specia, pricing pricing decisions ons are more ,ike,& to )se (#ic# o$ t#e $o,,o(ing cost concepts in t#eir (ork% A! Tota, Tota, cost! C! aria aria',e ',e co cost! st! B! +rod)ct cost! D!
oint prod)cts 6/! T(o or more man)$act)red man)$act)red prod)cts prod)cts t#at #a-e signi$icant sa,es -a,)es -a,)es and are not )ni;)e,& identi$ia',e as indi-id)a, prod)cts )nti, t#e sp,it1o$$ point are ca,,ed A! common prod)cts! prod)cts! C! co1ming,ed prod)cts! prod)cts! B! 0oint n t pro prod)c d)cts! ts! D! cooperat cooperati-e i-e prod)cts prod)cts!!

Cost1p,)s approac# 7! In )sing t#e -aria',e cost concept o$ app,&ing t#e cost1p,)s approac# approac# to prod)ct pricing5 (#at is inc,)ded in t#e mark)p% A! Tota, Tota, costs p,)s desired desired pro$it! B! Desi Desire redd pro$i pro$it! t! C! Tota, Tota, se,,ing and administrati-e administrati-e e*penses e*penses p,)s p,)s desired desired pro$it! D! To Tota, ta, $i*ed man)$act)rin man)$act)ringg cos costs5 ts5 tota, $i*ed se,,ing ng and admin administra istrati-e ti-e e*penses5 e*penses5 and

Re,e-ant costs Incrementa, re-en)e =8! Incremen Incrementa, ta, re-en)e re-en)e is: A! a di$$erence in costs costs 'et(een t(o t(o decisions! B! a concessio concessionn 'ased on competiticompetiti-ee in$,)ences in$,)ences!! C! additiona, re-en)e re-en)e across across decision decision c#oices c#oices $rom $rom potentia, sa,es! D! t#e di$$erence di$$erence 'et(een 'et(een se,,ing price and -aria',e costs! costs! 16


D! decrease decrease in direct direct $i*ed *ed costs costs!! Cost to process $)rt#er 6! "#ic# o$ t#e $o,,o(ing costs is re,e-ant re,e-ant in deciding (#et#er to se,, 0oint prod)cts at sp,it1o$$ or process t#em $)rt#er% A! T#e )na-oida',e )na-oida',e costs o$ $)rt#er processing processing!! B! T#e addition additiona, a, costs o$ $)rt#er $)rt#er process processing! ing! C! T#e -aria',e -aria',e costs costs o$ operating t#e 0oint process! D! T#e cost cost o$ materia,s materia,s )sed to make t#e 0oint prod)cts! prod)cts!

Irre,e-ant cost 2@! "#ic# o$ t#e $o,,o(ing s#o),d not enter into decision decision o$ (#et#er to drop prod)ct% prod)ct% A! Una-oida' Una-oida',e ,e costs B! A-oid A-oida', a',e costs costs C! Re-en)e Re-en)e t#at (o),d (o),d 'e ,ost ,ost D! Non$inan Non$inancia, cia, impacts impacts o$ t#e t#e decision sion

62! "#at are t#e man)$act)ring man)$act)ring costs inc)rred 'e&ond 'e&ond t#e sp,it1o$$ point ca,,ed% A! Separa',e costs! costs! C! Se-era Se-eranc ncee costs costs!! B! oint costs! D! Common costs!

Decision r),e /7! As ,ong as its margina, cost is ,o(er t#an its margina, margina, re-en)e5 a compan& s# s#o),d o),d A! s)spend additiona, additiona, prod)ction prod)ction and sa,es acti-ities! acti-ities! B! per$orm a cost1'ene$it 'a,ance 'a,ance ana,&sis ana,&sis 'e$ore prod)cing prod)cing and and se,,ing additiona, additiona, prod)cts! prod)cts! C! engage in additiona, additiona, prod)ction prod)ction and and sa,es acti-ities! D! e*amine e*amine cost 'e#a-ior 'e#a-iorss and de-e,op a cost $)nction on to meas)re meas)re t#e cost o$ $)t)re prod)ction!

Decision r),e 69! o( does a compan& determine determine (#et#er to se,, a prod)ct as is or or process it $)rt#er% A! I$ t#e costs to process $)rt#er e*ceed t#e costs o$ c)rrent prod)ction5 t#e prod)ct s#o),d 'e so,d Jas is! B! I$ t#e costs to process process $)rt#er e*ceed t#e costs costs o$ c)rrent c)rrent prod)ction5 t#e prod)ct s#o),d s#o),d 'e processed $)rt#er! C! I$ t#e increase in re-en)e re-en)e $rom se,,ing t#e t#e prod)ct a$ter $)rt#er $)rt#er processing is greater t#an t#e additiona, costs inc)rred in $)rt#er processing5 t#e compan& s#o),d opt $or $)rt#er processing! D! I$ t#e re-en)es re-en)es generate generatedd '& processi processing ng t#e prod)ct $)rt#er $)rt#er e*ceed e*ceed t#e re-en)es re-en)es $rom se,,ing t#e prod)ct as is5 t#e compan& s#o),d process $)rt#er!

Strategic considerations considerations 66! T#e decision to keep or drop prod)cts prod)cts or ser-ices in-o,-es in-o,-es strategic consideration consideration o$ t#e: A! potentia, impact on remaining remaining prod)cts prod)cts or ser-ices ser-ices B! impact impact on on emp,o& emp,o&ee ee mora, mora,e C! gro(t# gro(t# potenti potentia, a, o$ o$ t#e $irm D! A,, o$ t#e t#e a'o-e a'o-e ans(ers ans(ers are are correct correct

Decision r),e /6! A prod)ct prod)ct mi* decision in-o,-es A! In$,)encing t#e sa,es sa,es -o,)me mi* o$ t#e prod)cts prod)cts to minimi.e minimi.e cost! B! In$,)encing t#e sa,es -o,)me -o,)me mi* o$ t#e prod)cts to ma*imi.e re-en)e! re-en)e! C! +rod)cing t#e ma*im)m amo)nt amo)nt o$ items t#at t#at pro-ide t#e #ig#est contri')tion contri')tion margin! margin! D! +rod)cing t#e ma*im)m amo)nt amo)nt o$ items t#at t#at carr& t#e t#e ,o(est per1)nit per1)nit cost!

Goa, /2! T#e goa, in deciding (#et#er to add or drop prod)cts5 prod)cts5 ser-ices5 or departments is to o'tain t#e greatest A! red)ction in tota, costs! costs! B! cont contri') ri')tion tion possi',e possi',e to co-er )na-oida )na-oida',e ',e costs! costs! C! increase increase in sa,es sa,es re-en re-en)es! )es! 17


/4! A )se$), de-ice $or so,-ing so,-ing prod)ction prod)ction pro',ems pro',ems in-o,-ing in-o,-ing m),tip,e m),tip,e prod)cts prod)cts and ,imited ,imited reso)rces is: A! gross sa,es per )nit o$ prod)ct prod)ct C! net pro$it per )nit o$ prod)ct prod)ct B! cont contri') ri')tion tion per )nit )nit o$ scarce scarce reso)r reso)rce ce D! tota tota,, 'ene 'ene$i $itt

A! B! C! D!

/8! "#en t#ere is on,& one prod)ction prod)ction constraint and e*cess demand5 demand5 it is genera,,& 'est to $oc)s prod)ction and sa,es on t#e prod)ct (it# t#e #ig#est: A! Contri')tion per )nit o$ scarce reso)rce reso)rce C! Contri')t Contri')tion ion margi margin in pesos pesos B! Margin o$ Sa$et& D! Operating Le-erage

i

!

decrementa,? cost (as: A! + 9@5@@@ C! + 4@ 4@5@ 5@@@ @@ B! +> 9@5@@@? D! +>4@5@@@?

ii

L).on L).on
67! "#en t#ere is one scarce reso)rce5 reso)rce5 t#e prod)ct t#at s#o),d 'e prod)ced prod)ced $irst is t#e prod)ct (it# t#e #ig#est A! contri')tion margin margin per )nit o$ t#e scarce scarce reso)rce! reso)rce! B! sa,es sa,es price price per )nit o$ scarce scarce reso)rce reso)rce!! C! de m maa nd nd! D! contri') contri')tion tion margin margin per )nit! )nit! !

/9! Uran)s Compan& Compan& #as 8 prod)cts t#at )se t#e same man)$act)ring man)$act)ring $aci,ities and cannot cannot 'e s)'contracted! s)'contracted! Eac# prod)ct #as s)$$icient orders to )ti,i.e t#e entire man)$act)ring capacit&! capacit&!
its $ai,)re to recogni.e recogni.e $i*ed costs! costs! its $ai,)re $ai,)re to recogni.e recogni.e deprecia depreciation tion e*pense e*pense!! its ina'i,i ina'i,it& t& to contro contro,, (aste! (aste! its ina'i,it& to recogni.e $inancing costs costs o$ t#e prod)ction prod)ction in ;)estion! ;)estion!

Incrementa, net income iii ! Siene& Siene&  Compan& Compan& #as 895@@ 895@@@@ de$ectide$ecti-ee )nits o$ a prod)c prod)ctt t#at t#at cost +2 per )nit to man)$act)re5 and can 'e so,d $or +9 per )nit! T#ese )nits can 'e re(orked $or +8 per )nit and so,d at t#eir $),, price price o$ +48 eac#! I$ Siene& Siene& re(orks t#e de$ecti-e de$ecti-e )nits5 #o( m)c# incrementa, net income (i,, res),t% A! +4995@@@ C! + /8 /8 5@ 5@@ @ B! + 765@@@ D! + 925@@@

//! A compan& s#o),d ad-ertise ad-ertise t#ose prod)cts prod)cts t#at A! Re;)ire t#e ,o(est ,o(est commitment o$ reso)rces reso)rces to prod)ce prod)ce B! a-e a-e t#e ,argest ,argest tota, tota, contri')ti contri')tion on margin margin C! Can Can 'e o)tso) o)tso)rce rcedd D! a-e t#e ,argest tota, contri')tion contri')tion margin margin a$ter ded)cting ded)cting t#e cost cost o$ t#e ad campaign campaign

Minim)m price i! o0i Compan& Compan& man)$a man)$act)re ct)ress and se,, sa,es >sa,es and prod)ction o$ t#e 8@@6 mode,? $o,,o(s: Se,,ing price +=@@

+it$a,, 24! T#e ma0or pit$a,, in t#e contri')tion contri')tion margin approac# approac# to pricing pricing is 18


Cost per )nit: Direct materia,s /@ Direct ,a'or 9@ OO-er#ead >@H -aria',e? 6@ Se,,ing costs >9@H -aria',e? 4@@ +rod)ction in )nits 4@5@@@ Sa,es in )nits 75@@ At t#is time >Ma& 8@@/?5 t#e 8@@/ mode, is in prod)ction and it renders t#e 8@@6 mode, radio o'so,ete! A $oreign $irm is (i,,ing to p)rc#ase p)rc#ase t#e o'so,ete prod)cts at a net price o$ +49@ eac#! I$ t#e remaining @@ )nits o$ t#e 8@@6 mode, radios are are to 'e so,d t#ro)g# reg),ar c#anne,s5 (#at is t#e minim)m price t#e compan& (o),d accept $or t#e radios% A! +=@@ C! +8/@ B! +42@ D! + 9@

T#e specia, order re;)ires 45@@@ ki,ograms o$ po(dered Nitrocide5 a so,id c#emica, reg),ar,& )sed in t#e compan&3s prod)cts! T#e c)rrent stock o$ Nitrocide is 25@@@ ki,ograms at a 'ook -a,)e o$ +2!4@ per ki,ogram! I$ t#e specia, order is accepted5 t#e $irm (i,, 'e $orced to restock po(dered Nitrocide Nitrocide ear,ier t#an e*pected5 at a predicted cost o$ +2!/@ per ki,ogram! "it#o)t t#e specia, order5 t#e p)rc#asing manager predicts t#at t#e price (i,, 'e +2!=@5 (#en norma, restocking takes p,ace! p,ace! An& order o$ t#e Nitrocide m)st 'e in 5@@@ ki,ograms! "#at is t#e re,e-ant cost o$ po(dered Nitrocide to 'e inc,)ded in t#e specia, order% A! + 25/@@ C! + 4@ 4@ 5= 5=@ @ B! + 25=@@ D! +9 +9=5@@ Incrementa, cost -iii ! Ba,agtas Ba,agtas  Compan& Compan& e*pects e*pects to inc)r t#e $o,,o(ing $o,,o(ing costs at t#e p,anned p,anned prod)ction prod)ction ,e-e, o$ 4@5@@@ )nits: Direct materia,s +4@@5@@@ Direct ,a'or 48@5@@@ aria',e o-er#ead 6@5@@@
Unit re,e-ant cost ! en)s en)s Compan&5 Compan&5 a man)$act) man)$act)rer rer o$ ,amps5 ')dgeted ')dgeted sa,es es o$ 9@@5@@@ 9@@5@@@ ,amps at +8@ per )nit $or t#e &ear! aria' aria',e ,e man)$act)rin man)$act)ringg costs (ere ')dgeted ')dgeted at +2 per )nit5 and $i*ed man)$act)ring costs at +  per )nit! A specia, order o$$ering o$$ering to ')& 9@5@@@ ,amps $or +44!@ eac# (as recei-ed '& en)s en)s in Apri,! en)s #as s)$$icient s)$$icient p,ant capacit& to man)$act)re t#e additiona, ;)antit& o$ ,amps #o(e-er5 t#e prod)ction (o),d #a-e to 'e done '& t#e present (ork $orce on an o-ertime1'asis o-ertime1'asis at at an estimated additiona, cost cost o$ +4!@ per ,amp! en)s (i,, not inc)r an& se,,ing e*penses e*penses as a res),t o$ t#e specia, order! en)s Compan& Compan& (o),d #a-e a )nit re,e-ant cost o$ A! + 2!@@ C! + 7!@ B! +4 +4=!@@ D! +49!@ -i

!

Minim)m accepta',e price ! Brace Co! #as considera',e considera',e e*cess e*cess man)$act)ring man)$act)ring capacit&! capacit&! A sspecia, pecia, 0o' order3s cost cost s#eet inc,)des t#e $o,,o(ing app,ied man)$act)ring man)$act)ring o-er#ead costs: aria',e costs +658@
i*

"a(a "a(a Enterprises Enterprises #as t#e capacit& capacit& to prod)ce prod)ce 4@5@@@ 4@5@@@ 'earings 'earings55 ')t operates operates at 7@H o$ capacit&! Bearings Bearings norma,,& se,, $or +6@ eac#5 and cost an a-erage o$ +@ to make5 inc,)ding a s#are o$ t#e mont#,& $i*ed costs o$ +42@5@@@! I,og Corp #as o$$ered to ')& 45@@@ 'earings at +9@ eac#! "#at is t#e re,e-ant cost per )nit% A! + 8@ C! + 9@ B! + = @ D! + @

Tota, re,e-ant cost -ii ! Inte,,ect)a, ,ect)a, Co! recent,& recei-e recei-edd an order order $or a prod)ct prod)ct t#at it does not norma,,& norma,,& prod)ce! prod)ce! Since t#e compan& #as e*cess prod)ction capacit&5 capacit&5 management is considering considering accepting t#e order! In ana,&.ing t#e decision5 decision5 t#e assistant contro,,er is compi,ing t#e re,e-ant re,e-ant costs o$ prod)cing t#e order!

*

!

19

T#e cost cost to prod)ce prod)ce 895@@@ 895@@@ )nits )nits at /@H capacit& capacit& consi consists sts o$:

Incremental Analysis *iii

Direct materia,s +=6@5@@@ Direct ,a'or 9@5@@@ =H -aria',e5 6H $i*ed? 89@5@@@ "#at )nit price (o),d t#e compan& #a-e to c#arge to make +885@@ on a sa,e o$ 45@@ additiona, )nits t#at (o),d 'e s#ipped o)t o$ t#e norma, market area% A! + 4 C! + 94 B! +  6 D! + @ *i

!

! De Si,-a Co! Co! is a man)$act)rer o$ ind)stria, components! components! One o$ t#eir t#eir prod)cts t#at is )sed )sed as a s)'component s)'component in a)to man)$act)ring is KB67! T#is prod)ct #as t#e $o,,o(ing $o,,o(ing $inancia, str)ct)re per )nit: Se,,ing price +4@ Direct materia,s + 8@ Direct ,a'or 4 aria',e man)$act)ring o-er#ead 48
Kai,a Compan& Compan&3s 3s )nit cost o$ man)$act) man)$act)ring ring and se,,ing ,ing a gi-en item at an acti-it& acti-it& ,e-e, ,e-e, o$ 4@5@@@ )nits per mont# are: Man)$act)ring costs Direct materia,s +=7 Direct ,a'or 6 aria',e o-er#ead 2
*i-

! S&,-ania S&,-ania Compan& Compan&!! is c)rrent,& c)rrent,& operatin operatingg at a ,oss o$ +45@@@! +45@@@! T#e sa,es manager manager #as recei-ed a specia, order $or 5@@@ )nits o$ prod)ct5 (#ic# norma,,& se,,s $or += per )nit! Costs associated (it# t#e prod)ct are: direct materia,5 +6 direct ,a'or5 +4@ -aria',e o-er#ead5 += app,ied $i*ed o-er#ead5 +9 and -aria',e se,,ing e*penses5 +8! T#e specia, order (o),d a,,o( t#e )se o$ a s,ig#t,& ,o(er grade o$ direct materia,5 t#ere'& ,o(ering t#e price per )nit '& +4!@ and se,,ing e*penses (o),d 'e decreased '& +4! I$ S&,-ania (ants t#is specia, order to increase t#e tota, net income $or t#e $ irm to +85@@@5 (#at sa,es price m)st 'e ;)oted $or eac# o$ t#e 5@@@ )nits% A! +42!@ C! +87!@@ B! +89!@ D! + 86 86 ! !@

*ii

! C#ris& s& Compan& Compan& se,,s a prod)ct prod)ct $or +42 per )nit and t#e standard standard cost card $or t#e prod)ct prod)ct s#o(s t#e $o,,o(ing costs: Direct materia,s + 4!@@ Direct ,a'or 8!@@ O-er#ead >2@H $i*ed? /!@@ Tota, +4@!@@ C#ris& recei-ed recei-ed a specia, order $or 45@@@ )nits o$ t#e prod)ct! T#e on,& additiona, cost to C#ris& (o),d 'e $oreign $oreign import ta*es o$ +4 per )nit! I$ C#ris& is a',e to se,, a,, o$ t#e c)rrent prod)ction domestica,,&5 domestica,,&5 (#at (o),d 'e t#e minim)m sa,es price t#at C#ris& (o),d consider $or t#is specia, order% A! + 42 C! + 4/ B! + 4 7 D! + 44

Ma*im)m ,ost reg),ar sa,es ! C#)a Compan& Compan& se,,s se,,s a prod)ct prod)ct $or +8@ (it# -aria',e a',e cost o$ +2 per )nit! )nit! C#)a co),d co),d accept accept a specia, order $or 45@@@ )nits at +49! I$ C#)a accepted t#e order5 #o( man& )nits co),d co),d it ,ose at t#e reg),ar price 'e$ore t#e decision 'ecome )n(ise% A! 45@@@ )nits C! @ @@@ )n )nit itss B! 8@@ )nits D! @ )nits

*-

*-i

!
20


Determine t#e n)m'er o$ )nits t#e& co),d ,ose 'e$ore t#e order 'ecome )npro$ita',e! A! 8@@ )nits! C! 9@@ )nits! B! 46 46@@ )ni )nits! t s! D! @@ @@ )ni )nits ts

prod)ction o$ =@5@@@ )nits! Direct materia,s + 9 Direct ,a'or 48 aria',e man)$act)ring o-er#ead 6
E$$ect on pro$it o$ accepting t#e order ! Yo) Yo) #a-e 'een approac#e approac#edd '& a $oreign c)stomer c)stomer (#o (ants (ants to p,ace p,ace an order order $or 45@@@ )nits o$ +rod)ct C at +88!@ a )nit! Yo) c)rrent,& c)rrent,& se,, t#is item $or +=7 a )nit5 and t#e item #as a cost o$ +87 a )nit! <)rt#er ana,&sis re-ea,s t#at &o) (i,, not 'e pa&ing sa,es commission o$ +8!@ a )nit on t#is sa,es and its packaging re;)irement (i,, sa-e &o) an additiona, +4!@ per )nit! o(e-er5 t#e additiona, grap#ics grap#ics re;)ired on t#is 0o' (i,, cost &o) +=@5@@@! Note a,so t#at $i*ed costs amo)nting to +9@@5@@@ $or t#e prod)ction o$ @5@@@ o$ s)c# prod)cts '& t#e $irm (i,, not c#ange! Yo) decide to accept t#is order5 ')t anot#er c)stomer (#o ')&s an a-erage o$ 85@@@ )nits $or t#e period (ants to pa& &o) +88!@ rat#er t#an t#e reg),ar price o$ +=7 a )nit! +ro$it (i,, A! increase pro$it pro$it '& +475@@ C! increase increase pro$it pro$it '& +85@@ +85@@ B! increase pro$it '& +465@@ D! decrease pro$it '& +85@@

*-ii

**i

! Lo)der#ead Compan& Compan& makes makes '),,1repe,,ent '),,1repe,,ent scent according according to a traditiona, traditiona, "estern recipe5 recipe5 (#ic# norma,,& se,,s at +7@ per )nit! Norma, prod)ction -o,)me is 4@5@@@ o)nces per mont#! A-erage cost is +@ per o)nce5 o)nce5 o$ (#ic# +8@ is direct materia, and +4@ is -aria',e con-ersion con-ersion cost! T#is prod)ct prod)ct is seasona,! A$ter ),&5 demand demand $or t#is prod)ct drops drops to 65@@@ o)nces mont#,&! In No-em'er5 Garrison Co! o$$ers to ')& 45@@ o)nces $or +6@5@@@! I$ Lo)der#ead accepts t#e order5 it m)st design a specia, ,a'e, $or Garrison at a cost o$ +5@@@! Eac# ,a'e, (i,, cost +8!@ t o make and app,&! Lo)der#ead s#o),d: A! accept t#e order5 order5 at a gain o$ +658@ +658@ B! re0ect e ct t#e t#e orde order5 r5 at at a ,oss ,oss o$ +425 +425/@ /@ C! re0ect re0ect t#e t#e order order55 at a ,oss ,oss o$ o$ +8=5/@ +8=5/@ D! accept accept t#e t#e order order55 at a gain o$ +4458 +4458@@

*-iii

! T#e T#ermo Compan& Compan& #as recei-ed recei-ed a specia, specia, order $or =@@ )nits )nits o$ prod)ct  $or +6 a )nit! )nit! It )s)a,,& se,,s $or +7!@ a )nit (it# a cost o$ +/!@ a )nit inc,)si-e o$ / cents a )nit as sa,es commission t#at (i,, not 'e paid on t#is order! T#e cost a,so inc,)des += in man)$act)ring o-er#ead o-er#ead55 (as t(o1t#ird t(o1t#ird o$ (#ic# (#ic# is $or t#e $air s#are s#are o$ depreciation5 ation5 rent5 rent5 )ti,ities )ti,ities and s)per-isorFs sa,ar&! T#e ,atter3s >s)per-isorFs sa,ar&? acco)nts $or one1#a,$ o$ t#is amo)nt! Ass)ming t#at e*cess capacit& is a-ai,a',e5 and t#is order re;)ires a mo,d t#at costs +4@5 accepting t#e order (i,, increase A! ,oss '& +88 C! ga gain in '& +8 +88 8 B! ,oss '& +=/ D! gain '& +=/

)estion Nos! 62 and 67 are 'ased on t#e $o,,o(ing in$ormation: T#e Disk Di-ision o$ S&stems Specia,ist Specia,ist Compan& prod)ces a #ig# ;)a,it& comp)ter comp)ter disks! Unit prod)ction costs >'ased on capacit& prod)ction o$ 4@@5@@@ )nits per &ear? $o,,o(: Direct materia,s +@ Direct ,a'or 8@ O-er#ead >8@H -aria',e? 4@ Ot#er in$ormation: Sa,es price 4@@ SG  A costs >9@H -aria',e? 4 T#e Disk Di-ision is operating at a ,e-e, o$ /@5@@@ c#ips per &ear!

*i*

! A,e0ar Compan& man)$act)res man)$act)res a prod)ct prod)ct (it# a )nit -aria',e -aria',e cost o$ +@ and a )nit sa,es price o$ +22!
**ii

**

! KC Ind)stries Ind)stries man)$act) man)$act)res res a prod)ct (it# t#e $o,,o(ing $o,,o(ing costs costs per )nit at t#e e*pected e*pected 21

! "#at is t#e minim)m price price t#at t#e di-ision (o),d consider on a specia, specia, order o$ 45@@@ 45@@@ disks to 'e distri')ted t#ro)g# norma, c#anne,s% A! + /8 C! + 24 B! + /2 D! + 6

Incremental Analysis **iii

! Ass)ming t#at t#at t#e Disk Disk Di-ision is prod)cing and se,,ing se,,ing at capacit&! capacit&! "#at is t#e minim)m se,,ing price t#at t#e di-ision (o),d consider on a specia, order o$ 45@@@ c#ips on (#ic# no -aria',e period costs (o),d 'e inc)rred% A! +4@@ C! + 79 B! + /8 D! + 7@

capacit& costs t#at (i,, not 'e a$$ected '& an& make1or1')& decision represent 6@H o$ t#e app,ied o-er#ead! T#e a-ai,a',e =@5@@@ mac#ine #o)rs are to 'e sc#ed),ed so t#at ELM rea,i.es ma*im)m potentia, cost sa-ings! T#e re,e-ant )nit prod)ction costs t#at s#o),d 'e considered considered in t#e decision to sc#ed),e mac#ine time are: A! +9!@@ $or Beta and +49/!@@ +49/!@@ $or eta C! +49!@@ $or Beta and +48/!@@ +48/!@@ $or eta B! +@!@@ +@!@@ $or Beta and and +4@!@@ +4@!@@ $or eta eta D! +=@!@ +=@!@@@ $or Beta Beta and +4=!@ +4=!@@@ $or eta eta

Re,e-ant costs **i!
Ma*im)m ')& price **-i ! T#e $o,,o(ing $o,,o(ing are a compan&3 compan&3s mont#,& )nit costs to man)$act) man)$act)re re and market a partic),a partic),ar r prod)ct! Man)$act)ring Man)$act)ring Costs: Direct materia,s +8!@@ Direct ,a'or 8!9@ aria',e indirect 4!6@
Re,e-ant cost to make **. ELM Electronics has the following standard costs and other data: +art Beta +art eta Direct materia,s + 9!@@ +2@!@@ Direct ,a'or 4@!@@ 9/!@@
**-ii

! Sinta Compan& can make 45@@@ 45@@@ )nits o$ a necessar& component component (it# t#e $o,,o(ing costs: Direct Materia,s +695@@@ Direct La'or 465@@@ aria',e O-er#ead 25@@@
22


t#e 45@@@ )nits e*terna,,&% A! +4@85@@@! B ! + 79 795 @@ @@@ !

E$$ect o$ ')& decision On $i*ed o-er#ead cost ***i ! SisaFs S#op can make 45@@@ )nits o$ a necessar& necessar& component component (it# t#e $o,,o(ing $o,,o(ing costs: Direct Materia,s +695@@@ Direct La'or 465@@@ aria',e O-er#ead 25@@@
C! + 765@@@! D! + 225 225@@ @@@! @!

**-iii

! A,medaFs S#op can make 45@@@ )nits )nits o$ a necessar& component component (it# t#e $o,,o(ing costs: Direct Materia,s +695@@@ Direct La'or 465@@@ aria',e O-er#ead 25@@@
On income ***ii ! S&,-an S&,-an +rocessing +rocessing Compan& Compan& is considering considering (#et#er (#et#er to make 85@@@ )nits o$ prod)ct prod)ct "#ir, (#ic# costs +46 a )nit or ')& it $rom o)tside $or +4 a )nit! A $)rt#er ana,&sis s#o(s t#at i$ prod)ct "#ir, is o)tso)rced5 $i*ed costs o$ +25@@@ attri')ta',e to t#is prod)ct (i,, 'e red)ced '& 8H! I$ t#e prod)ct is o)tso)rced5 S&,-an (i,, A! Decrease pro$it '& +85@@@ C! Increase pro$it pro$it '& +85@@@ B! Dec Decreas reasee pro$it pro$it '& +95@@ +95@@@@ D! Increase Increase pro$it '& +95@@@ +95@@@

E$$ect o$ make decision **i* ! A ')siness is operating operating at 7@H o$ capacit& and is c)rrent,& c)rrent,& p)rc#asing p)rc#asing a part (#ic# is 'eing )sed in its man)$act)ring operations operations $or +4 per )nit! T#e )nit cost $or t#e ')siness to make t#e part is +8@5 inc,)ding $i*ed costs5 and +485 not inc,)ding $i*ed costs! costs! I$ =@5@@@ )nits o$ t#e part are norma,,& p)rc#ased d)ring t#e &ear ')t co),d 'e man)$act)red )sing )n)sed capacit&5 (#at (o),d 'e t#e amo)nt o$ di$$erentia, cost5 increase or decrease5 $rom making t#e part rat#er t#an p)rc#asing it% A! +4@5@@@ cost increase increase C! +4@5@@@ cost decrease decrease B! + 7@5 7@5@@@ @@@ cos costt decr decreas easee D! + 7@5@@@ 7@5@@@ cost cost inc increa rease se

***iii

! S&,-an +rocessing +rocessing Compan& is considering considering (#et#er to make 85@@@ )nits o$ prod)ct "#ir, (#ic# costs +46 a )nit or ')& it $rom o)tside $or +4 a )nit! A $)rt#er ana,&sis s#o(s t#at i$ prod)ct "#ir, is o)tso)rced5 $i*ed costs o$ +25@@@ attri')ta',e to t#is prod)ct (i,, 'e red)ced '& 8H! I$ S&,-an +rocessing Compan& p)rc#ased t#e prod)ct "#ir,5 t#e space co),d 'e rented o)t $or +65@@@! I$ t#e prod)ct is o)tso)rced5 o)tso)rced5 pro$it (o),d A! decrease5 decrease5 +85@@@ C! inc increa rease se55 +85@@ +85@@@@ B! decrease5 +95@@@ D! increase5 +95@@@

***

! A,$aroFs Man)$act)ring Man)$act)ring Compan& can can make 4@@ )nits o$ o$ a necessar& component component part (it# t#e $o,,o(ing costs: Direct Materia,s +2@5@@@ Direct La'or 4=5@@@ aria',e O-er#ead 9@5@@@
***i-

! It costs +9@5@@@ to make 45@@@ 45@@@ )nits o$ a part in t#is p,ant! T#is cost cost inc,)des materia, materia, o$ +7@5@@@5 direct ,a'or o$ +48@5@@@5 -aria',e o-er#ead o$ +45@@@5 and +885@@@ in $i*ed o-er#ead inc,)si-e o$ +95@@@ in depreciation and common o-er#ead a,,ocation o$ +4@5@@@! T#e 'a,ance is $or t#e section s)per-isorFs sa,ar&! sa,ar&! T#e part can 'e p)rc#ased $or +8@ a )nit! I$ t#e part is p)rc#ased5 t#e space re,eased can 'e rented $or +65@@@! I$ t#e part is p)rc#ased5 t#e compan& (i,, A! ,ose +8@5@@@ C! ga gain in +8 +8@5 @5@@ @@@@ B! ,ose +95@@@ D! gain +95@@@

23


Gar,and5 t#e )nit cost o$ "S/= (o),d A! Increase '& +952@@ +952@@ B! Decrease '& +=58@@

***-

! Lane Co! man)$act)res 'a,,point 'a,,point pens! Anot#er man)$act)rer man)$act)rer #as o$$ered to s)pp,& Lane (it# t#e 5@@@ ink cartridges t#at it needs ann)a,,&! T#e cost to ')& t#e cartridges (o),d 'e +4 eac#! In prod)cing its o(n cartridges5 Lane #as inc)rred +4@ in $i*ed costs and +2 in -aria',e costs! I$ Lane ')&s t#e cartridges5 its net income (i,,: A! not c#ange C! increase '& +=5@@@ +=5@@@ B! dec decre rease ase '& +=5 +=5@@@ @@@ D! increa increase se '& +85@@ +85@@@@

C! Decrea Decrease se '& +658@ +658@@@ D! Increase '& +452@@

***-iii

! T#e R)ra, R)ra, Cooperati-e5 Cooperati-e5 Inc! prod)ce prod)cess 45@@@ )nits o$ +art M per mont#! mont#! T#e tota, man)$act)ring costs o$ t#e part are as $o,,o(s: Direct materia,s +4@5@@@ Direct ,a'or 5@@@ aria',e o-er#ead 5@@@
***-i

! T#e Rain'o( Compan& man)$act)res man)$act)res +art No! 972 $or )se in its prod)ction c&c,e! T#e cost per )nit i$ 8@5@@@ )nits o$ +art No! 972 are man)$act)red are as $o,,o(s: Direct materia,s +6 Direct ,a'or =@ aria',e o-er#ead 48
***i*

! Migs Corporatio Corporationn c)rrent, c)rrent,& man)$act) man)$act)res res a,, componen componentt parts )sed in t#e man)$act)re man)$act)re o$ -ario)s #and too,s! A stee, #and,e is )sed in t#ree di$$erent di$$erent too,s! T#e ')dgeted costs per )nit 'ased on 8@5@@@ )nits are: Direct materia, +6!@@ Direct ,a'or 9!@@ aria',e o-er#ead 4!@@
***-ii

! Leis Man)$act)ring Co! )ses 4@ )nits o$ +art N)m'er "S/= eac# mont# in t#e prod)ction o$ comp)ter printer! T#e )nit cost to man)$act)re one )nit o$ "S/= is presented 'e,o(! 'e,o(! Direct materia,s + 45@@@ Materia,s #and,ing >8 >8@H o$ direct materia, cost? 8@@ Direct ,a'or 25@@@ Man)$act)ring o-er#ead >4 >4@H o$ direct ,a'or? 485@@@ Tota, man)$act)ring cost +8458@@ Materia, #and,ing represents t#e direct -aria',e costs o$ t#e Recei-ing Department t#at are app,ied to direct materia,s and p)rc#ased p)rc#ased components on t#e 'asis o$ t#eir cost! T#is is a separate c#arge in addition to man)$act)ring o-er#ead! Leis3 ann)a, man)$act)ring man)$act)ring o-er#ead ')dget is one1t#ird -aria',e and t(o1t#irds $i*ed! $i*ed! Gar,and Compan&5 Compan&5 one o$ Leis3 re,ia',e -endors5 #as o$$ered to s)pp,& part "S/= at a )nit price o$ +45@@@! I$ Leis p)rc#ase p)rc#asess t#e "S/= )nits $rom Gar,and5 and5 t#e capacit& 'eing 'eing )sed '& Leis to man)$act) man)$act)re re t#ese parts (o),d 'e id,e! id,e! S#o),d S#o),d Leis decide to p)rc#ase p)rc#ase t#e parts $rom

*,

!

24

T#e Mino,ta5 Inc! prod)ces prod)ces 45@@@ 45@@@ )nits o$ +art M per mont#! mont#! T#e tota, man)$act)ring man)$act)ring costs o$ t#e part are as $o,,o(s: Direct materia,s +4@5@@@ Direct ,a'or 5@@@ aria',e o-er#ead 5@@@


B,ade Di-ision cannot se,, an& additiona, prod)cts to o)tside c)stomers! S#o),d Dana a,,o( its La(n +rod)cts Di-ision to p)rc#ase t#e ',ades $rom t#e o)tside s)pp,ier5 and (#&% A! Yes5 Yes5 'eca)se ')&ing ')&ing t#e ',ades (o),d (o),d sa-e Dana Compan& Compan& +@@! B! No5 'eca)se 'eca)se making making t#e ',ades ',ades (o),d (o),d sa-e Dana Compan& Compan& +45@@! +45@@! C! Yes5 Yes5 'eca)se ')&ing ')&ing t#e ',ades ',ades (o),d sa-e Dana Dana Compan& +85@@! D! No5 'eca)se 'eca)se making t#e ',ades (o),d (o),d sa-e Dana Dana Compan& Compan& +85@@ *,iii

! T#e Conne,, Compan& Compan& )ses 5@@@ )nits o$ +art +art @4 eac# &ear! &ear! T#e cost o$ man)$act)ring man)$act)ring one )nit +art @4 at t#is -o,)me is as $o,,o(s: Direct materia,s +8!@ Direct ,a'or =!@ aria',e o-er#ead 4!@
*,i

! B),acan Compan& Compan& man)$act)res man)$act)res part G $or )se in t#e prod)ction prod)ction o$ its principa, principa, prod)ct! prod)ct! T#e costs per )nit $or 4@5@@@ )nits o$ part G are as $o,,o(s: Direct materia,s + = Direct ,a'or 4 aria',e o-er#ead 6
+oint o$ indi$$erence 1 Units ! Mars Ind)stries Ind)stries is a m),ti1prod)ct m),ti1prod)ct compan& t#at c)rrent,& c)rrent,& man)$act)res man)$act)res =@5@@@ )nits )nits o$ +art S98 eac# mont# $or )se in t#e prod)ction o$ its main prod)ct! T#e $aci,ities no( 'eing )sed to prod)ce +art S98 #a-e $i*ed mont#,& cost o$ +4@5@@@ and a capacit& to prod)ce 295@@@ )nits per mont#! I$ Mars (ere to ')& +art S98 $rom an o)tside s)pp,ier5 t#e $aci,ities (o),d 'e id,e5 ')t 6@ percent o$ its $i*ed costs (o),d not contin)e! T#e -aria',e prod)ction prod)ction costs o$ +art S98 are +44 per )nit! I$ Mars Ind)stries is a',e to o'tain +art S98 $rom an o)tside s)pp,ier at a )nit p)rc#ase price o$ +48!2/5 t#e mont#,& )sage at (#ic# it (i,, 'e indi$$erent 'et(een p)rc#asing and making +art S98 is A! =@5@@@ )nits C! 2@5@@@ )nits B! =85@ =85@@@ @@ )nit )nitss D! 92 925@ 5@@@ @@ )n )nititss

*,i-

*,ii

. Blade Division Division of Dana Comany Comany roduces hardened hardened steel blades. blades. !ne"third !ne"third of the Blades Division#s outut is sold to the Lawn $roducts Division of Dana% the remainder is sold to outside customers. &he Blade Division#s estimated sales and standard costs data for the fiscal year ending 'une () are as follows: La(n +rod)cts O)tsiders Sa,es +45@@@ +9@5@@@ aria',e costs >4@5@@@? >8@5@@@? =5@@@? >65@@@? Gross margin + 85@@@ 495@@@ Unit sa,es 4@5@@@ 8@5@@@ T#e La(n +rod)cts Di-ision #as an opport)nit& to p)rc#ase 4@5@@@ identica, ;)a,it& ',ades $rom an o)tside s)pp,ier at a cost o$ +4!8 per )nit on a contin)ing 'asis! Ass)me t#at t#e

+oint o$ indi$$erence 1 price ! Ca,ero Man)$act)ring Man)$act)ring Compan& Compan& can make make 4@@ )nits o$ o$ a necessar& necessar& component component part (it# t#e $o,,o(ing costs:

*,-

25


Direct Materia,s +2@5@@@ Direct La'or 4=5@@@ aria',e O-er#ead 9@5@@@
is determined as follows:

+rod)ct  +rod)ct Y Re-en)e +4=@ +2@ aria',e costs /@ +=2 Contri')tion margin + 6@ +98 Tota, Tota, demand demand $or  is 465@@@ 465@@@ )nits and $or Y is 25@@@ 25@@@ )nits! Mac#ine Mac#ine #o)r is a scarce reso)rce! 985@@@ mac#ine #o)rs #o)rs are a-ai,a',e d)ring t#e &ear! &ear! +rod)ct  re;)ires 6 mac#ine mac#ine #o)rs per )nit (#i,e prod)ct Y re;)ires = mac#ine #o)rs per )nit! ow many units of / and 0 should ingis Cororation roduce? A! B! C! D! +rod)ct  465@@@ 25@@@ /5@@@ =5@@@ +rod)ct Y .ero 95@@@ .ero 25@@@

+oint o$ indi$$erence *,-i . Disum *oft Drin+s ma+es ma+es three roducts: iced tea, tea, soda, and lemonade. lemonade. &he following data are available: Iced Tea Soda Lemonade Sa,es price per )nit +7!@@ +6!@@ +!@@ aria',e cost per )nit =!@@ 4!@ 4!@@ Contri')tion margin per )nit +6!@@ +9!@ +9!@@ Disum is e-eriencing a bottlenec+ in one of its rocesses that affects each roduct as follows: Iced Tea Soda Lemonade Bott,eneck process #o)rs per )nit = = 9 "#at price $or ,emonade (o),d e;)ate its pro$ita'i,it& to t#at o$ soda% A! +2!@@! C! +6!@@! B! +/!@@! D! + ! ! @ @ !

*,i*

. Mary Mary Manufa Manufactu cturin ring g has assemble assembled d the followin following g data data ertai ertainin ning g to two oular roducts. B, en end er er E ,ect riri c m i*er Direct materia,s + 6 +44 Direct ,a'or 9 7 )nits? >)nits? 8@5@@@ 825@@@ +ast e*perience #as s#o(n t#at t#e $i*ed man)$act)ring o-er#ead component component inc,)ded in t#e cost per mac#ine #o)r a-erages a-erages +4@! Mar& #as a po,ic& o$ $i,,ing a,, sa,es orders5 e-en i$ it means p)rc#asing )nits $rom o)tside s)pp,iers! I$ @5@@@ mac#ine #o)rs are a-ai,a',e5 and Mar& Man)$act)ring desires to $o,,o( an optima, strateg&5 it s#o),d A! prod)ce 85@@@ 85@@@ e,ectric mi*ers5 mi*ers5 and p)rc#ase p)rc#ase a,, ot#er )nits as needed B! prod prod)ce )ce 8@5@@@ 8@5@@@ ',enders ',enders and 45@@@ e,ectric e,ectric mi*ers5 mi*ers5 and p)rc#ase p)rc#ase a,, ot#er )nits as needed C! prod)ce 8@5@@@ 8@5@@@ ',enders ',enders and p)rc#ase p)rc#ase a,, ot#er ot#er )nits as needed D! prod)ce 825@@@ 825@@@ e,ectric mi*ers and p)rc#ase a,, ot#er )nits as needed needed

Optima, mi* *,-ii ! +rod)ct A se,,s se,,s $or +48 per )nit and its -aria',e -aria',e cost per )nit is +4@! +rod)ct +rod)ct B se,,s $or +4 per )nit and its -aria',e cost per )nit is +48! T#e p,ant capacit& is =@5@@@ mac#ine #o)rs #o)rs and 'ot# prod)cts re;)ire one mac#ine #o)r to man)$act)rer! "#ic# o$ t#e $o,,o(ing (i,, pro-ide t#e 'est sa,es mi* o$ +rod)ct A and +rod)ct B ass)ming t#e market ,imitation o$ +rod)ct A is 8@@5@@@ )nits and t#e market ,imitation o$ +rod)ct B is 8@5@@@ )nits% A! 8@5@@@ )nits o$ +rod)ct +rod)ct A5 4@@5@@@ 4@@5@@@ )nits o$ +rod)ct B B! @5@@@ @5@@@ )nits )nits o$ +rod)ct +rod)ct A5 =@@5@@@ =@@5@@@ )nits )nits o$ +rod)ct +rod)ct B C! 4@@5 4@@5@@@ @@@ )nits )nits o$ +rod)ct +rod)ct A5 8@5@@@ 8@5@@@ )nits o$ +rod)ct +rod)ct B D! 4@5@@@ 4@5@@@ )nits )nits o$ +rod)ct +rod)ct A5 8@@5@@@ 8@@5@@@ )nits o$ +rod)ct +rod)ct B

Decision , ! A compan& compan& can se,, se,, a,, t#e )nits ts it can prod)ce prod)ce o$ eit#er eit#er +rod)ct +rod)ct A or +rod)c +rod)ctt B ')t not 'ot#! +rod)ct A #as a )nit contri')tion margin o$ +=6 and takes t(o mac#ine #o)rs to make and +rod)ct B #as a )nit contri')tion margin o$ +9 and takes t#ree mac#ine #o)rs to make! I$ t#ere are 45@@@ mac#ine #o)rs a-ai,a',e to man)$act)re a prod)ct5 income (i,, 'e A! +=5@@@ more i$ +rod)ct +rod)ct A is made! C! +=5@@@ +=5@@@ ,ess i$ +rod) +rod)ct ct A is made! made!

*,-iii

. &he ingis Cororation Cororation manufactures manufactures two roducts: roducts: / and 0. Contribution margin margin er unit 26


B! +=5@ +=5@@@ @@ ,ess ,ess i$ +r +rod od)c )ctt B is mad made! e! ,i

!

D! t#e t#e sam samee i$i$ eit eit#e #err pro prod) d)ct ct is made made!!

C! 65@@@ )nits o$ +,astic and man)$act)ring man)$act)ring t#e remaining 'earings! 'earings! D! 5@@@ )nits o$ Meta, and man)$act)ring man)$act)ring t#e remaining 'earings! 'earings!

T#e Baco Compan& prod)ces t#ree prod)cts prod)cts (it# t#e $o,,o(ing $o,,o(ing costs and se,,ing se,,ing prices: prices: A B C Se,,ing price per )nit +46 +84 +84 aria',e cost per )nit / 44 4= Contri')tion margin per )nit + 7 +4@ + 2 Direct ,a'or #o)rs per )nit 4!@ 4 ! 8!@ Mac#ine #o)rs per )nit 9! 8 !@ 8!

,iii

In what order should the three products be produced if either the direct laborhours or the machine hours are the compan!s production constraint"

Direct ,a'or #o)rs Mac#ine #o)rs ,ii

.

A! A5 B5 C B5 C5 A

B! B5 C5 A B! C! A

C! B5 C5 A A5 C5 B

D! A5 B5 C A5 C5 B

*carce Comany Comany has has been roducing roducing two two tyes of bearings, bearings, $lastic $lastic and Metal, Metal, for its own use in the roduction of main roducts. &he data regarding these two bearings follow: +,astic Meta, Mac#ine #o)rs re;)ired per )nit = !@ 9! Standard cost per )nit +rime costs + 2!@@ + 7!@@ aria',e o-er#eadQ =!@@ 9!@@
. 1L! 1L! Coman Comany y manufa manufactu ctures res electr electric ic carentr carentry y tools. &he roduct roduction ion deartment had met all roduction re2uirements for the current month and has an oortunity to roduce additional units of roduct with its e-cess caacity. 3nit selling rices and unit costs for three different drill models are as follows: ome Mode, De,)*e Mode, +ro Mode, Se,,ing price +2 +6 +2@ Direct materia, 46 8@ 47 Direct ,a'or >+4@ per #o)r? 4@ 4 8@ aria',e o-er#ead 2 48 46
,i-

! +rod)ct +rod)ct A se,,s ,s $or +48 per )nit and its -aria' -aria',e ,e cost per )nit is +4@! +rod)ct +rod)ct B se,,s $or +4 per )nit and its -aria',e cost per )nit is +48! T#e p,ant capacit& is =@5@@@ mac#ine #o)rs #o)rs and +rod)ct A re;)ires 92 min)tes to comp,ete (#i,e +rod)ct B re;)ires / min)tes! "#ic# o$ t#e $o,,o(ing (i,, pro-ide t#e 'est sa,es mi* o$ +rod)ct A and +rod)ct B ass)ming t#e market ,imitation o$ +rod)ct A is 8@@5@@@ )nits and t#e market ,imitation o$ +rod)ct B is 8@5@@@ )nits% A! 9652/ )nits o$ +rod)ct +rod)ct A5 8@5@@@ 8@5@@@ )nits o$ +rod)ct B B! 8@@5 8@@5@@@ @@@ )nits ts o$ +rod)ct +rod)ct A5 485@@@ 485@@@ )nits o$ +rod)ct +rod)ct B C! 485@@@ 485@@@ )nits ts o$ +rod)ct +rod)ct A5 8@@5@@@ 8@@5@@@ )nits o$ +rod)ct +rod)ct B D! 4@@5@@@ 4@@5@@@ )nits ts o$ +rod)ct +rod)ct A5 8@5@@@ 8@5@@@ )nits o$ +rod)ct +rod)ct B

Qaria',e Qaria',e man)$act)ring o-er#ead is app,ied on t#e 'asis o$ direct ,a'or #o)rs! QQma*imi.e its net 'ene$its?! Scarce Compan& (i,, ma*imi.e its net 'ene$its '& p)rc#asisng A! /5@@@ )nits o$ +,astic and and man)$act)ring man)$act)ring t#e remaining 'earings! 'earings! B! 445@@@ 445@@@ )nits o$ o$ Meta, and man)$act)ring /5@@@ )nits o$ +,astic!

,-

!

27

Dimasa,ang Compan& #as #as on,& 85@@@ 85@@@ #o)rs o$ mac#ine time eac# mont# to man)$act)re man)$act)re its t(o prod)cts! +rod)ct  #as a contri')tion margin o$ +@ and +rod)ct Y #as a contri')tion margin o$ +69! +rod)ct  re;)ires  mac#ine mac#ine #o)rs and +rod)ct +rod)ct Y5 2 #o)rs! #o)rs! I$ Dimasa,ang (ants to dedicate 2@H o$ its mac#ine time to t#e prod)ct t#at (i,, pro-ide t#e most income5 it (i,, #a-e a tota, contri')tion margin o$ A! +8@5@@@ C! +84@5@@@ B! +8 +89@ 9@5@ 5@@@ @@ D! +8@@ +8@@5@ 5@@@ @@


Aaron $inis#es t#e prod)ct5 t#e& (i,, inc)r +/5@@@ o$ additiona, materia, costs and anot#er +45@@@ in ,a'or and o-er#ead costs! "#en $inis#ed5 Aaron (i,, 'e a',e to se,, t #e prod)ct $or +=@5@@@! "#ic# o$ t#e $o,,o(ing ans(ers is correct% A! Se,, no( B!
Minim)m sa,es ,-i ! Sno( C,ean Corporati Corporation on prod)ces prod)ces c,eaning c,eaning compo)nds compo)nds and so,)tions so,)tions $or ind)stri ind)stria, a, and #o)se#o,d )se! "#i,e most o$ its prod)cts are processed independent,&5 independent,&5 a $e( are re,ated! Grit ==/5 a coarse c,eaning po(der (it# man& ind)stria, )ses5 costs +46 a po)nd to make and se,,s $or +8@ a po)nd! A sma,, portion o$ t#e ann)a, prod)ction o$ t#is prod)ct is retained $or $)rt#er $)rt#er processi processing ng in t#e Mi*ing Department5 Department5 (#ere (#ere it is com'ined com'ined (it# se-era, se-era, ot#er ingredients to $orm a paste5 (#ic# is marketed marketed as a si,-er po,is# se,,ing $or +9@ per 0ar! 0ar! T#is $)rt#er processing processing re;)ires  po)nd o$ Grit ==/ per 0ar! Costs o$ ot#er ingredients5 ,a'or5 ,a'or5 and -aria',e o-er#ead o-er#ead associated (it# t#is $)rt#er processing processing amo)nt to +8 per 0ar! aria',e aria',e se,,ing costs are += per 0ar! I$ t#e decision (ere made to cease prod)ction o$ t#e si,-er po,is#5 +65@@@ +65@@@ o$ Mi*ing Mi*ing Department Department $i*ed costs co),d 'e a-oided! a-oided! Sno( C,ean C,ean #as ,imited ,imited prod)ction capacit& $or Grit ==/5 ')t )n,imited demand $or t#e c,eaning po(der! "#at is t#e minim)m n)m'er o$ 0ars o$ si,-er po,is# t#at (o),d #a-e to 'e so,d to 0)sti$& $)rt#er processing o$ Grit ==/! A! 25@@@ C! /5@@@ B! 56@@ D! 9566/

E$$ect o$ decision ,*

.

!ttawa !ttawa Cororation Cororation roduc roduces es two roducts roducts from a 4oint 4oint rocess. rocess. 1nformatio 1nformation n about the two two 4oint roducts follows:

+rod)ct  +rod)ct Y Anticipated prod)ction prod)ction 85@@@ ,'s 95@@@ ,'s Se,,ing price per po)nd at sp,it1o$$ +=@ +46 Additiona, processing processing costspo)nd costspo)nd a$ter sp,it1o$$ +4 +=@ >a,, -aria',e? Se,,ing pricepo)nd a$ter $)rt#er processing +9@ +@ T#e 0oint cost is +25@@@! Otta(a c)rrent,& se,,s se,,s 'ot# prod)cts at t#e sp,it1o$$ point! I$ Otta(a makes decision (#ic# ma*imi.es pro$it5 its pro$it (i,, increase '& A! +465@@@ C! + 95 @@ @@@ B! + +@5@@@ D! +4 +4@5@@@

Decision ,-ii ! Bea, Compan& is starting ')siness ')siness and is )ns)re o$ o$ (#et#er to se,, se,, its prod)ct prod)ct assem',ed or or )nassem',ed! )nassem',ed! T#e )nit cost o$ t#e )nassem',ed prod)ct is +9@ and Bea, Compan& (o),d se,, it $or +7@! T#e cost to assem',e t#e prod)ct is estimated at +42 per )nit and Bea, Compan& 'e,ie-es t#e market (o),d s)pport a price o$ +446 on t#e assem',ed )nit! "#at is t#e correct decision )sing t#e se,, or process $)rt#er decision r),e% A! Se,, 'e$ore assem',&5 assem',&5 t#e compan& compan& (i,, 'e 'etter 'etter o$$ '& +42 per )nit!t! B! Se,, 'e$ore assem',& assem',&55 t#e compan& compan& (i,, 'e 'etter 'etter o$$ '& +86 per )nit!t! C! +rocess $)rt#er5 $)rt#er5 t#e compan& (i,, (i,, 'e 'etter o$$ o$$ '& +86 per per )nit! D! +rocess $)rt#er5 $)rt#er5 t#e compan& (i,, (i,, 'e 'etter o$$ o$$ '& +2 per per )nit!

,*i

! T#e cost to man)$act)re man)$act)re an )n$inis#ed )n$inis#ed )nit is +9@ >+=@ >+=@ -aria',e -aria',e and +4@ +4@ $i*ed?! T#e se,,ing se,,ing price per )nit is +@! T#e compan& #as )n)sed prod)ction prod)ction capacit& and #as determined t#at )nits co),d 'e $inis#ed and so,d $or +6 (it# an increase in -aria',e costs costs o$ 9@H! "#at is t#e additiona, net income per )nit to 'e gained '& $inis#ing t#e )nit% A! + = C! +4@ B! +4 D! +48

,-iii

! Sa,es o$ 85@@@ )nits at +/!8@ per )nit are made made mont#,&! T#e )nit cost is +!7@! +!7@! Incrementa, costs o$ +4!= per )nit to $)rt#er process t#e )nits (i,, res),t in t#e 85@@@ )nits 'eing so,d $or +2!/ eac#! "#ic# co)rse o$ action s#o),d t#e compan& take% A! Commit its reso)rces reso)rces to a di$$erent di$$erent prod)ct B! Se,, t#e )nits )nits at t#e c)rre c)rrent nt stage stage o$ comp,etio comp,etionn C! Do $)rt#er $)rt#er process processing ing and se,, t#e )nits at +2!/ +2!/ D! Do $)rt#er $)rt#er process processing ing on on,& one1#a one1#a,$,$ o$ t#e )nits

Tota, processing cost ,*ii ! Matador Matador Man)$act)r Man)$act)ring ing sc#ed),es sc#ed),es a (eek,& prod)ct prod)ction ion o$ 45@@@ )nits o$ +rod)ct +rod)ct M and =@5@@@ )nits o$ N $or (#ic# +2@@5@@@ common -aria',e costs are inc)rred! T#ese t(o prod)cts can 'e so,d as is or processed processed $)rt#er! <)rt#er processing processing o$ eit#er prod)ct does not de,a& t#e prod)ction o$ s)'se;)ent s)'se;)ent 'atc#es o$ t#e 0oint prod)cts! Be,o( are some o$ t#e in$ormation: M N Unit se,,ing price (it#o)t $)rt#er processing +8 +47 Unit se,,ing price (it# $)rt#er processing +=4 +8= Tota, Tota, separ separate ate (eek, (eek,& -aria' -aria',e ,e costs costs o$ o$ $)rt#er $)rt#er proc proces essin singg +4@@5@ +4@@5@@@ @@ +44@ +44@5@@ 5@@@@

,i*

! Aaron Compan& Compan& prod)ces prod)ces a prod)ct prod)ct t#at can 'e so,d $or +8@5@@@ at an intermediate intermediate stage! I$ 28


To ma*imi.e Matador3s man)$act)ring contri')tion margin5 t#e tota, separate -aria',e costs o$ $)rt#er processing t#at s#o),d 'e inc)rred eac# (eek are A! +4@5@@@ C! +4 +444@5 @5@@ @@@@ B! +4@@5@@@ D! + 84@5@@@

,*-ii

! B),)san B),)san Compan& Compan& norma,,& norma,,& prod)ce prod)cess and se,,s =@5@@@ =@5@@@ )nits o$ E49 eac# eac# mont#! E49 is a sma,, e,ectrica, re,a& )sed in t #e a)tomoti-e ind)str& as a component part in -ario)s prod)cts! T#e se,,ing price is +88 per )nit5 -aria',e costs are +49 per )nit5 $i*ed man)$act)ring o-er#ead costs tota, +4@5@@@ per mont#5 and $i*ed se,,ing costs tota, +=@5@@@ per mont#!

Ana,&sis ,*iii ! A compan& compan& is deciding deciding (#et#er or not to e,iminate nate a segment segment o$ its ')siness ')siness!! T#e segment generates tota, sa,es o$ +4@95@@@5 its direct e*penses are +885@@@5 and its indirect e*penses are +865@@@! Its cost o$ goods so,d is +695@@@! Si* t#o)sand pesos o$ t#e direct e*penses and +25@@@ o$ its indirect e*penses are a-oida',e e*penses! "#ic# o$ t#e $o,,o(ing is not tr)e% A! T#is segment #as #as a net ,oss o$ +25@@@! +25@@@! B! T#is segmentFs segmentFs re-en)e re-en)e is greater t#an its a-oida',e a-oida',e costs! costs! C! T#is segmen segmentt is a good candidate date $or e,imination! imination! D! T#is segmentFs segmentFs a-oida',e a-oida',e costs are are greater t#an t#an )na-oida',e )na-oida',e costs!

Emp,o&ment1contract Emp,o&ment1contract strikes in t#e companies t#at p)rc#ase t#e '),k o$ t#e E49 #a-e ca)sed B),)san B),)san Compan&3s Compan&3s sa,es to temporar temporari,& i,& drop to on,& 75@@@ )nits per mont#! B),)san B),)san Compan& estimates t#at t#e strikes (i,, ,ast $or a'o)t t(o mont#s5 a$ter (#ic# time sa,es o$ E49 s#o),d ret)rn to norma,! norma,! D)e to t#e c)rrent c)rrent ,o( ,e-e, o$ sa,es5 sa,es5 #o(e-er5 #o(e-er5 B),)san B),)san Compan& is t#inking a'o)t c,osing do(n its o(n p,ant d)ring t#e t(o mont#s t#at t#e strikes are on! I$ B),)san Compan& does c,ose c,ose do(n its p,ant5 it is estimated t#at $i*ed man)$act)ring o-er#ead costs can 'e red)ced to +4@5@@@ per mont# and t#at $i*ed se,,ing costs can 'e red)ced '& 4@H! Start1)p costs at t#e end o$ t#e s#)tdo(n s#)tdo(n period (o),d (o),d tota, +25@@@! Since B),)san Compan& )ses 0)st1in1time prod)ction met#od5 no in-entories are on #and! At (#at ,e-e, o$ )nit sa,es $or t#e t(o1mont# period s#o),d B),)san Compan& 'e indi$$erent 'et(een temporari,& c,osing t#e p,ant or keeping it open% A! 445@@ 445@@@@ C! 4 @5 @5 @@ @@@ B! 895 48 48 D! 25@@@

E$$ect o$ drop decision ,*i! Bana#a( Bana#a( Compan& Compan& p,ans to discontin discontin)e )e a departme department nt t#at #as a contri') contri')tion tion margin o$ +89@5@@@ and +92@5@@@ +92@5@@@ in $i*ed costs! O$ t#e $i*ed costs5 costs5 +84@5@@@ can 'e a-oided! a-oided! T#e e$$ect o$ t#is discontin)ance discontin)ance on Bana#a(3s o-era,, net operating income (o),d 'e a>an? A! decrease o$ o$ +=@5@@@ C! increa increase se o$ +=@5 +=@5@@@ @@@ B! decrease o$ +4@5@@@ D! increase o$ +4@5@@@

,*-iii

! MNL Compan& Compan& #as an opport)nit& opport)nit& to ac;)ire ac;)ire a ne( mac#ine mac#ine to rep,ace one o$ its present present mac#ines! T#e ne( mac#ine (o),d cost +7@5@@@5 #a-e a 1&ear ,i$e and no estimated sa,-age -a,)e! aria',e aria',e operating costs (o),d 'e +4@@5@@@ per per &ear! T#e present present mac#ine #as a 'ook -a,)e o$ +@5@@@ and a remaining remaining ,i$e o$  &ears! Its disposa, -a,)e no( is +5@@@5 +5@@@5 ')t it (o),d 'e .ero a$ter  &ears! &ears! aria',e operating operating costs (o),d 'e +485@@@ +485@@@ per &ear! Ignore income ta*es! Considering t#e  &ears in tota,5 (#at (o),d 'e t#e di$$erence in pro$it 'e$ore income ta*es '& ac;)iring t#e ne( mac#ine as opposed to retaining t#e present one% A! +4@5@@@ decrease decrease C! +=5@@@ increase increase B! +45@@ +45@@@@ decr decreas easee D! +9@ +9@5@@ 5@@@@ incre increase ase

,*-

! Mina Co! mines mines t#ree prod)ct prod)cts! s! Go,d Ore Ore se,,s $or +45@@@5@ +45@@@5@@@ @@ per ton5 -aria',e a',e costs costs are +6@@5@@@ per ton5 and $i*ed mining costs are +65@@@5@@@! T#e segment margin $or 8@@/ (as +458@@5@@@! T#e management management o$ Mina Co! (as considering dropping t#e mining o$ Go,d Ore! On,& one1#a,$ o$ t#e $i*ed e*penses are direct and (o),d 'e e,iminated i$ t#e segment (as dropped! I$ Go,d Ore (ere dropped5 dropped5 net income $or $or Mina Co! (o),d A! Increase '& +85@@@5@@@ +85@@@5@@@ C! Decrease '& +85@@@5@@@ B! Increa Increase se '& +458@ +458@@5@ @5@@@ @@ D! Decr Decrease ease '& +458@ +458@@5@@ @5@@@@

,*-i

! Agimat Compan& Compan& p,ans to discontin)e a segment (it# (it# a +=85@@@ segment margin! margin! Common e*pense e*pensess a,,ocate a,,ocatedd to t#e segment amo)nted amo)nted to +95@@@5 +95@@@5 o$ (#ic# (#ic# +8@5@@@ +8@5@@@ cannot cannot 'e e,iminated i$ t#e segment (ere c,osed! c,osed! T#e e$$ect o$ c,osing do(n t#e segment segment on Agimat Compan&3s 'e$ore ta* pro$it (o),d 'e A! +485@@@ decrease decrease C! +485@@@ increase increase B! + /5@@@ /5@@@ dec decrea rease se D! + /5@@@ /5@@@ increa increase se

,*i*

29

! Darren Darren Co! is consider considering ing disposing disposing an e;)ipment e;)ipment t#at costs costs +@5@@@ and #as +9@5@@@ o$ acc)m),ated depreciation to date! Darren Co! can se,, t#e e;)ipment t#ro)g# a 'roker $or +85@@@ ,ess H commission! A,ternati-e,&5 Minton Co! #as o$$ered to ,ease t#e e;)ipment $or $i-e &ears $or a tota, o$ +925/@! Darren (i,, inc)r repair5 ins)rance5 ins)rance5 and propert& ta* e*penses estimated at +4@5@@@! At ,ease1end5 t#e e;)ipment is e*pected to #a-e no resid)a, -a,)e! T#e net di$$erentia, income $rom t#e ,ease a,ternati-e is:


A! +45@@@! B! + 5@@@!

,**iii

C! +85 +85@@ @@@! @! D! +4 + 485@@!

! D)e to a strike in its s)pp,ier3s p,ant5 Adrena, Adrena, Compan& is )na',e to p)rc#ase p)rc#ase more materia, $or t#e prod)ction o$ CADS! T#e strike is e*pected e*pected to ,ast $or t(o mont#s! Adrena, Compan& Compan& #as eno)g# materia, on #and to contin)e to operate at =@H o$ norma, ,e-e,s $or t#e t(o mont#s! I$ t#e p,ant (ere c,osed5 $i*ed o-er#ead costs (o),d contin)e at 6@H o$ t#eir norma, ,e-e, d)ring t#e t(o1mont# period t#e $i*ed se,,ing costs (o),d 'e red)ced '& 8@H (#i,e t#e p,ant (as c,osed! o( m)c# is t#e ad-antage or disad-antage o$ c,osing t#e p,ant $or t#e t(o1mont# period% A! Disad-antage5 Disad-antage5 +4995@@@ C! Disa Disad-an d-antage tage55 +45 +45@@@ @@@ B! Ad-antage5 +4995@@@ D! Ad-antage5 +45@@@

)estions /@ t#ro)g# /9 are 'ased on t#e $o,,o(ing in$ormation: Adrena, Compan& #as a sing,e prod)ct ca,,ed a CAD! T#e compan& norma,,& prod)ces and se,,s 6@5@@@ CADS eac# &ear at a se,,ing price o$ +=8 per )nit! T#e compan&3s )nit costs at t#is ,e-e, o$ acti-it& are gi-en 'e,o(: Direct materia,s +4@!@@ Direct ,a'or 9!@ aria',e man)$act)ring o-er#ead 8!=@
,**i-

! An o)tside man)$act)rer man)$act)rer #as o$$ered to prod)ce prod)ce CADS $or Adrena, Compan& Compan& and to s#ip t#em direct,& to Adrena,3s c)sto c)stomers! mers! I$ Adrena, Compan& accepts t#is o$$er5 t#e $aci,ities t#at it )ses to prod)ce CADS (o),d 'e id,e #o(e-er5 $i*ed o-er#ead costs (o),d 'e red)ced '& /H o$ t#eir present ,e-e,! Since t#e o)tside man)$act)rer man)$act)rer (o),d pa& $or a,, t#e costs o$ s#ipping5 t#e -aria',e se,,ing costs costs (o),d 'e on,& t(o1t#irds o$ t#eir present present amo)nt! "#at is t#e )nit cost $ig)re t#at is re,e-ant $or comparison to (#ate-er ;)oted price is recei-ed $rom t#e o)tside man)$act)rer% A! +8@!7 C! + 8@ 8@ ! ! B! +8 +84!= D! +46!2@

,**

! Ass)me Ass)me t#at Adrena, Adrena, Compan& Compan& #as s)$$icient s)$$icient capacit& t& to prod)ce prod)ce 7@5@@@ 7@5@@@ CADS eac# &ear (it#o)t an& increase in $i*ed man)$act)ring o-er#ead costs! T#e compan& co),d increase its sa,es '& 8H a'o-e t#e present 6@5@@@ )nits eac# &ear i$ it (ere (i,,ing to increase t#e $i*ed se,,ing e*penses '& +2@5@@@! T#e increase in income i$ t#e prod)ction is increased '& 8H is A! +4=@5@@@ C! + 8 85 @@ @@ @ B! +4@25=== D! + 8@52@@

,**i

)estion N)m'ers / t#o)g# // are 'ased on t#e $o,,o(ing: enderson E;)ipment Compan& #as prod)ced a pi,ot r)n o$ @ )nits o$ a recent,& de-e,oped c&,inder )sed in its $inis#ed $inis#ed prod)cts! T#e compan& e*pects e*pects to prod)ce and se,, se,, 2@@ )nits! T#e pi,ot r)n re;)ired 49!8 direct1,a'or #o)rs $or t#e @ c&,inders5 a-eraging @!82 direct1,a'or #o)rs per c&,inder! enderson enderson #as e*perienced a signi$icant ,earning c)r-e on t#e direct1,a'or #o)rs needed to prod)ce ne( ne( c&,inders! As c)m),ati-e o)tp)t o)tp)t do)',es5 sa& $rom 8 to @ )nits $or e*amp,e5 t#e a-erage ,a'or time per )nit dec,ines '& 8@ percent! +ast e*perience indicates indicates t#at ,earning tends to cease '& t#e time 2@@ parts are prod)ced! enderson3s enderson3s man)$act)ring costs $or c&,inders are as $o,,o(s: Direct ,a'or +48@!@@ per #o)r aria',e o-er#ead 4@@!@@ per direct ,a'or #o)r
! Ass)me again t#at t#at Adrena, Compan& Compan& #as s)$$icient s)$$icient capacit& capacit& to prod)ce 7@5@@@ 7@5@@@ CADS eac# &ear! A c)stomer c)stomer in a $oreign market (ants to p)rc#ase p)rc#ase 8@5@@@ CADS! CADS! Import d)ties on t#e CADS (o),d 'e +4!/@ per )nit5 and costs $or permits and ,icenses (o),d 'e +75@@@! T#e on,& se,,ing costs t#at (o),d 'e associated (it# t#e order (o),d 'e +=!8@ per )nit s#ipping cost! "#at is t#e 'reak1e-en price on t#is order% A! +8=!= C! + 88 88! 4 4 B! +8 +82!6 D! +84!/@

,**ii

! T#e compan& compan& #as 45@@@ CADS on #and t#at #a-e some de$ormities de$ormities and are t#ere$ore t#ere$ore considered to 'e seconds! seconds! D)e to t#e de$ormities5 it (i,, 'e impossi',e to se,, t#ese )nits at t#e norma, price t#ro)g# reg),ar distri')tion distri')tion c#anne,s! "#at )nit cost $ig)re is re,e-ant $or setting a minim)m se,,ing price% A! +46!2@ C! + 9!/@ B! +42! @@ @@ D! + 4!8@

enderson #as recei-ed a ;)ote o$ +/ per )nit $rom t#e Le&te Mac#ine Compan& $or t#e additiona, /@ c&,inders c&,inders needed! enderson $re;)ent,& $re;)ent,& s)'contracts t#is t&pe o$ (ork and #as a,(a&s 'een satis$ied (it# t#e ;)a,it& o$ t#e )nits prod)ced '& Le&te! Recent,&5 Recent,&5 enderson E;)ipment Compan& #as 'een operating at considera',& ,ess t#an $),, capacit&! capacit&! 30


,**-

! o( man& direct1,a' direct1,a'or or #o)rs are e*pected e*pected to 'e )sed $or t#e prod)cti prod)ction on o$ 2@@ c&,inders c&,inders >inc,)ding t#e pi,ot r)n?% A! 7=!9 #o)rs C! /7!4 /7!4 #o)r #o)rss B! /9!/ #o)rs D! 6/!6 #o)rs

A second a,ternati-e a,ternati-e a-ai,a',e a-ai,a',e to CLAS+ is to con-ert t#e specia, specia, mac#iner& to t#e t#e standard mode,5 (#ic# se,,s $or +685@@! T#e additiona, identi$ia',e costs $or t#is con-ersion are as $o,,o(s: Direct materia,s Direct ,a'or Tota,

,**-i

! T#e prod)ction o$ 2@@ c&,inders5 c&,inders5 inc,)ding t#e pi,ot r)n5 re;)ires re;)ires tota, incrementa, costs o$: A! +9252=9 C! +62598 B ! + 97 975 2@ 2@8 D! + 8 85 79 792

A t#ird a,ternati-e $or CLAS+ is to se,, t#e mac#ine as is $or a price o$ +85@@@! o(e-er5 o(e-er5 t#e potentia, ')&er o$ t#e )nmodi$ied mac#ine does not (ant it $or 6@ da&s! T#is ')&er #as o$$ered a +/5@@@ do(n pa&ment5 (it# t#e remainder d)e )pon de,i-er&!

,**-ii

! T#e e$$ect e$$ect on pro$it pro$it o$ prod)cin prod)cingg /@ )nits instead instead o$ ')&ing t#em $rom Le&te Mac#ine Mac#ine Compan& a>an?% A! Increase o$ + 259/@! C! Increa Increase se o$ +4856/6! +4856/6! B! Increase o$ + /5@8! D! Decrease o$ +8856@!

T#e $o,,o(ing additiona, in$ormation is a-ai,a',e regarding CLAS+3s operations: 4! T#e sa,es commission commission rate on sa,es sa,es o$ standard mode,s mode,s is 8 percent5 percent5 (#i,e t#e rate on specia, specia, orders is = percent!

)estions /2 t#ro)g# 24 are 'ased on t#e $o,,o(ing: CLAS+ Ind)stries recei-ed an order $or a piece o$ specia, mac#iner& $rom Tigok Compan&! )st as CLAS+ comp,eted t#e mac#ine5 Tigok dec,ared 'ackr)ptc&5 de$a),ted on t#e order5 and $or$eited t#e 4@ percent deposit paid on t#e se,,ing price o$ +/85@@!

8! Norma, Norma, credit credit terms $or $or sa,es o$ o$ standard standard mode,s mode,s are 84@5 84@5 net=@! net=@! T#is means means t#at t#at a c)stomer recei-es a 8 percent disco)nt i$ pa&ment is made (it#in 4@ da&s5 and pa&ment is d)e no ,ater t#an =@ da&s da&s a$ter 'i,,ing! Most c)stomers take take t#e 8 percent disco)nt! disco)nt! Credit terms $or a specia, order are negotiated (it# t#e c)stomer! c)stomer!

CLAS+3s man)$act)ring manager identi$ied t#e costs a,read& inc)rred in t#e prod)ction o$ t#e specia, mac#iner& $or Tigok as $o,,o(s: Direct materia, Direct ,a'or Man)$act)ringo-er#ead: aria',e
=! T#e a,,ocation rates rates $or man)$act)ring man)$act)ring o-er#ead o-er#ead and $i*ed se,,ing and administrati-e administrati-e costs costs are as $o,,o(s: Man)$act)ring costs: aria',e @H o$ direct1,a'or costs
+4656@@ 8459@@ +4@5/@@ 5=@

465@@ 59@ +759

9! Norma, Norma, time re;)ire re;)iredd $or re(ork re(ork is one one mont#! mont#! ,**-iii

Anot#er compan&5 compan&5 Ka& Corporation5 Corporation5 (i,, ')& t#e specia, mac#iner& i$ it is re(orked to Ka&3s speci$ica speci$ications tions!! CLAS+ CLAS+ o$$ered to se,, t#e re(orked re(orked mac#iner& mac#iner& to Ka& as a specia, specia, order $or +6259@@! Ka& agreed to pa& pa& t#e price (#en (#en it takes de,i-er& de,i-er& in t(o mont#s! mont#s! T#e additiona, additiona, identi$ia',e costs to re(ork t#e mac#iner& to Ka&3s speci$ications are as $o,,o(s: Direct materia,s Direct ,a'or Tota,

+852@ =5=@@ +654@

! o( m)c# peso contri')tion contri')tion (o),d t#e sa,e to Ka& Corporation add to CLAS+3 'e$ore1ta* 'e$ore1ta* pro$it% A! +=5292 C! +   57 57@ @ B! + +5792 D! + 75=@@

,**i*

+ 658@@ 958@@ +4@59@@

! o( m)c# peso contri')tion contri')tion (o),d t#e a,ternati-e a,ternati-e o$ con-ertin con-ertingg t#e specia, specia, mac#iner mac#iner&& to standard mode, add to CLAS+3s 'e$ore1ta* pro$it% A! +858@@ C! + 8 8 52 528 

31


B! + +959/

D! + /56@

9@=

,***

! I$ Ka& makes makes CLAS+ a co)ntero$ co)ntero$$er5 $er5 (#at (#at is t#e ,o(est price CLAS+ s#o),d s#o),d accept accept $or t#e re(orked mac#iner& $rom Ka&% A! +4@59@@ C! +4@5/88 B ! + 48 485 @ @@ D! + 48 485 22 22/

9@

! o( m)c# (o),d t#e a,ternati-e a,ternati-e o$ se,,ing ing )nmodi$ied $ied mac#iner& mac#iner& to t#e potentia, a, ')&er contri')te to CLAS+3s 'e$ore1ta* pro$it% A! +@599@ C! + 97 975 78 78@ B! + 45/9@ D! +9 +9759@@

+rod)ct 9@4 9@= 9@

)estion Nos! 28 and 2 are 'ased on t#e $o,,o(ing: Constraint Compan& man)$act)res and se,,s t#ree prod)cts5 (#ic# are man)$act)red in a $actor& (it# $o)r departments! Bot# ,a'or and mac#ine time are app,ied to t#e prod)cts as t#e& pass t#ro)g# eac# department! department! T#e mac#ines and ,a'or ski,,s ski,,s re;)ired in eac# department department are so specia,i.ed t#at neit#er mac#ines nor ,a'or can 'e s(itc#ed $rom one department to anot#er!

9 =5@@

Unit costs: Direct materia, Direct ,a'or Department 4 Department 8 Department = Department 9 aria',e o-er#ead
> 9@@? =54@@ 95@@

> =@@? 85/@@ 85/@

> 8@@? =5=@@ 856@@

+ 4=

+ 4/

48 84 89 7 8/ 4 = +476

6 49 11 42 8@ 4@ 8 +48=

48 49 46 7 8 =8 9 +46/

! "#ic# department department #as capacit& constraint nt in ,a'or #o)rs% A! Department 4 C! De Depa part rtme ment nt = B! Department 8 D! Department 9

,***iii

La'or and Mac#ine Speci$ications per Unit o$ +rod)ct +rod)ct La'or and Mac#ine Time 9@4 Direct ,a'or #o)rs Mac#ine #o)rs

! T#e tota, Mac#ine o)rs re;)ired re;)ired '& estimated mont#,& )nit sa,es are: A! 4@56@@ C! 445 6@ 6@ @ B! 48 4854@@ D! 4=5@@

8 4

= 4

= 8

4 8 32

9@

+ /

,***ii

> @@? =5@@@ =5/@@

1 1 8 4

8 8 4 4

Mont#,& Unit Sa,es @@ 9@@ 45@@@

+ R O D U C T S 9@4 9@=

Management #as assem',ed t#e $o,,o(ing in$ormation regarding a-ai,a',e mac#ine and ,a'or time '& department and t#e mac#ine #o)rs and direct1,a'ors re;)ired re;)ired per )nit o$ prod)ct! T#ese data s#o),d 'e -a,id $or t#e ne*t si* mont#s!

= =5@@@

8 4 8 8

In-entor& ,e-e,s are satis$actor& and need not 'e increased or decreased d)ring t#e ne*t si* mont#s! Unit price and cost data t#at (i,, 'e -a,id $or t#e ne*t si* mont#s mont#s are as $o,,o(s:

Constraint Compan&3s management is p,anning its prod)ction sc#ed),e $or t#e ne*t $e( mont#s! T#e p,anning is comp,icated5 'eca)se t#ere are ,a'or s#ortages in t#e comm)nit& and some mac#ines (i,, 'e do(n se-era, mont#s $or repairs!

D E + AR T M E N T 4 8 =5@@ =5@@

4 4 8 8

T#e sa,es department 'e,ie-es t#at t#e mont#,& demand $or t#e ne*t si* mont#s (i,, 'e as $o,,o(s:

,***i

Mont#,& Capacit& A-ai,a',e Norman mac#ine capacit& in M Capacit& o$ mac#ines 'eing repaired in mac#ine #o)rs A-ai,a',e mac#ine mac#ine capacit& in M A-ai,a',e direct direct ,a'or #o)rs >DL? >DL?

Direct ,a'or #o)rs Mac#ine #o)rs Direct ,a'or #o)rs Mac#ine #o)rs

Incremental Analysis ,***i-

! T#e tota, n)m'er o$ ,a'or #o)rs as constraint constraint $or a mont# is: A! @ C! =@@ B! /@ D! No cons constr trai aint nt

+9@ per )nit and t#e ,a'or (i,, 'e +/8 per )nit! Mr! S&0)co (i,, #a-e to spend +9@5@@@ +9@5@@@ $or a specia, de-ice (#ic# (i,, 'e discarded (#en t#e 0o' is done! ,***-i

! "#at is t#e incrementa, cost o$ t#e specia, specia, order o$ 5@@@ )nits% A! +6@@5@@@ C! +//75@@@ B! +9 +984 845@ 5@@@ @@ D! +=/4 +=/45@ 5@@@ @@

,***-

. 1n order to ma-imi5e its monthly rofit, Constraint Comany should roduce: A! B! C! D! 9@4 8@ 8@ @@ @@ 9@= @ 9@@ 9@@ @ 9@ 45@@@ 45@@@ 68 68

,***-ii

! "#at is t#e $),, cost o$ t#e specia, order% A! +//75@@@ B! +978 +97859 59@@ @@

)estion Nos! 26 t#ro)g# 27 are 'ased on t#e $o,,o(ing Arno,d S&0)co operates a sma,, mac#ine s#ops! e man)$act)res one standard prod)ct prod)ct a-ai,a',e $rom man& ot#er simi,ar ')sinesses and #e a,so man)$act)res man)$act)res prod)cts to c)stomer order! order! i acco)ntant acco)ntant prepared t#e ann)a, income statement s#o(n 'e,o(:

C! +9845@@@ D! +6 +64 45@ 5@@@ @@

,***-iii

!T#e amo)nt o$ opport)nit& cost o$ taking t#e specia, order is: A! +42=5@@@ C! +8@5@@@ B ! + / 45 45 @@ @@@ D! +489 +48956 56@@ @@

,***i*

Sa,es Materia, La'or Depreciation +o(er Rent eat and ,ig#t Ot#er To Tota, Income

C)stom Sa,es +45@@@5@@@ + 8@@5@@@ 9@@5@@@ 4865@@@ 495@@@ 48@5@@@ 485@@@ 25@@@ + 22@5@@@ + 48@5@@@

Standard Sa,es +@@5@@@ +46@5@@@ 42@5@@@ /85@@@ 25@@@ 8@5@@@ 85@@@ 425@@@ +96@5@@@ + 9@5@@@

! "#at is t#e e$$ect on t#e o-era,, pro$it i$ t#e specia, order is accepted% accepted% A! +9@5@@@ C! +> 85@@@? B! +> 25@ 25@@@ @@?? D! + 87 87 5@ 5@@ @

Tota, +45@@5@@@ + =6@5@@@ 2@5@@@ 4725@@@ 885@@@ 49@5@@@ 495@@@ 865@@@ +45=9@5@@@ + 46@5@@@

)estion Nos! 7@ t#ro)g# 79 are 'ased on t#e $o,,o(ing: T#e er'atim Corporation5 (#ic# prod)ces and se,,s to (#o,esa,ers a #ig#,& s)ccess$), ,ine o$ s)mmer ,otions and insect repe,,ents5 #as decided to di-ersi$& in order to sta'i,i.e sa,es o-er t#e &ear! A nat)ra, area $or t#e compan& to consider is t#e prod)ction o$ specia, ,otion and cream to pre-ent dr& and c#apped skin! A$ter considera',e considera',e researc#5 a specia, prod)ct ,ine #as 'een de-e,oped! de-e,oped! o(e-er5 o(e-er5 'eca)se o$ t#e conser-atism o$ t#e compan& management5 er'atim3s president #as decided to introd)ce on,& one o$ t#e ne( prod)cts prod)cts $or t#is coming rain& season! season! I$ t#e prod)ct prod)ct is a s)ccess5 s)ccess5 $)rt#er $)rt#er e*pansion (i,, 'e initiated in $)t)re &ears!

T#e depreciation c#arges are $or mac#ines )sed in t#e respecti-e prod)ct ,ines! T#e po(er c#arge is apportioned on t#e estimate o$ po(er cons)med! cons)med! T#e rent is $or t#e ')i,ding space (#ic# #as 'een ,eased $or 4@ &ears at +49@5@@@ per &ear! T#e rent and #eat and ,ig#t are apportioned to t#e prod)ct ,ines 'ased on amo)nt o$ $,oor space occ)pied! occ)pied! A,, ot#er costs are c)rrent e*penses e*penses identi$ied (it# t#e prod)ct ,ine inc)rring t#em!

T#e prod)ct se,ected >ca,,ed >ca,,ed C#aps? is a ,ip 'a,m t#at (i,, 'e so,d in a ,ipstick1t&pe t)'e! T#e prod)ct (i,, 'e so,d to (#o,esa,ers in 'o*es o$ 89 t)'es $or +2@@ per 'o*! Beca)se o$ a-ai,a',e capacit& capacit&55 no additiona, additiona, $i*ed c#arges c#arges (i,, 'e inc)rred inc)rred to prod)ce prod)ce t#e prod)ct! prod)ct! o(e-er o(e-er55 a +4@5@@@5@@@ $i*ed c#arge (i,, 'e a'sor'ed '& t#e ne( prod)ct to a,,ocate a $air s#are o$ t#e compan&3s present $i*ed costs to it!

A -a,)ed c)stom parts c)stomer c)stomer #as asked Mr! S&0)co to man)$act)re 5@@@ specia, )nits $or #im! Mr! S&0)co is (orking at capacit& and (o),d #a-e to gi-e )p some ot#er ')siness to take t#is ')siness! e cannot renege on c)stom orders a,read& agreed to ')t #e co),d red)ce t#e o)tp)t o$ #is standard prod)ct '& a'o)t one1#a,$ $or one &ear (#i,e prod)cing t#e specia,,& re;)ested c)stom part! T#e c)stomer is (i,,ing to pa& +49@ $or eac# eac# part! T#e materia, cost cost (i,, 'e a'o)t

Using t#e estimated sa,es and prod)ction o$ 4@@5@@@ 'o*es o$ C#aps as t#e standard -o,)me5 t#e acco)nting department #as de-e,oped t#e $o,,o(ing costs:

33


Direct ,a'or Direct materia,s Tota, o-er#ead Tota,

+8@@ per 'o* =@@ per 'o* 4@ per 'o* +6@ per 'o*

Unit man)$act)ring costs: Direct materia,s Direct ,a'or aria',e o-er#ead
er'atim #as approac#ed a cosmetics man)$act)rer to disc)ss t#e possi'i,it& o$ p)rc#asing t#e t)'es $or C#aps! T#e p)rc#ase price o$ t#e empt& t)'es $rom t#e cosmetics man)$act)rer (o),d 'e +7@ per 89 t)'es! I$ t#e er'atim Corporation accepts accepts t#e p)rc#ase proposa,5 it is estimated t#at direct ,a'or and -aria',e o-er#ead costs (o),d 'e red)ced '& 4@H and direct materia, costs (o),d 'e red)ced '& 8@H!

+45@@@ 45@@ @@ 458@@ @@ 459@@

+958@@

457@@ +654@@

Un,ess ot#er(ise stated5 ass)me t#ere is no connection 'et(een t#e sit)ations descri'ed in t#e ;)estions eac# is to 'e treated independent,&! Un,ess ot#er(ise stated5 a reg),ar se,,ing price o$ +/59@@ per )nit s#o),d 'e ass)med! ass)med! Ignore income ta*es and ot#er ot#er costs t#at are not mentioned in t#e cost sc#ed),e or in a ;)estion itse,$!

*c

! "#at is t#e t#e -aria',e a',e o-er#e o-er#ead ad rate per per 'o* o$ C#aps% C#aps% A! +4@@ C! + @ B! +4@ D! +8@@

*c-

! "#at is t#e mont#,& 'reake-en 'reake-en )nits $or Medica, S)pp,& S)pp,& Compan&% Compan&% A! 85@@@ C! 457@ B! 85627 D! 85649

*ci

! "#at is t#e materia, materia, cost per 'o* o$ C#aps sa-ed sa-ed '& p)rc#asing p)rc#asing t#em% t#em% A! +=@@ C! + 6@ B! +89@ D! + =@

*c-i *cii

! o( m)c# (o),d it cost cost er'atim er'atim to prod)ce t#e t)'es per per 'o*% A! + 6@ C! + 7@ B! + 2  D! +48@

*ciii

! o( m)c# (o),d er'atim er'atim inc)r '& making ng 485@@@ 'o*es5 'o*es5 ass)ming ass)ming t#at additiona, ona, e;)ipment5 at an ann)a, renta, o$ +45@@@5@@@5 m)st 'e ac;)ired to prod)ce t#is -o,)me% A! +4@5685@@@ C! +4458@5@@@ +4458@5@@@ B! +4 +44456 568 85@ 5@@@ @@ D! +485 +485@ @@5 @5@@ @@@@

! Market researc# researc# estimates t#at -o,)me -o,)me co),d 'e increased increased to =5@@ )nits5 (#ic# (#ic# is (e,, (it#in #oist prod)ction capacit& ,imitations5 i$ t#e price (ere ct $rom +/59@@ to +65@@ per )nit! Ass)ming t#e cost cost 'e#a-ior patterns patterns imp,ied '& t#e data in t#e cost cost sc#ed),e is correct5 correct5 (o),d &o) recommend t#is action 'e taken% A! Yes5 Yes5 'eca)se t#e pro$it pro$it (i,, increase '& +45@@5@@@! +45@@5@@@! B! Yes5 Yes5 'eca)se 'eca)se t#e pro$it (i,, increase '& + 8@@5@@@! C! No5 'eca)se 'eca)se t#e t#e pro$it (i,, decrease decrease '& +458@@5@@@! +458@@5@@@! D! No5 'eca)se 'eca)se t#e t#e pro$it (i,, decrease decrease '& +859@@5@@@! +859@@5@@@!

*c-ii

! On Marc# 45 a contract o$$er is made to Medica, S)pp,& Compan& Compan& '& t#e eterans3 ospita, ospita, to s)pp,& @@ )nits $or de,i-er& '& Marc# Marc# =4! Beca)se o$ an )n)s)a,,& ,arge ,arge n)m'er o$ r)s# orders $orm t#eir reg),ar c)stomers! c)stomers! Medica, S)pp,& p,ans to prod)ce prod)ce 95@@@ )nits d)ring Marc#5 (#ic# (i,, )se a,, a-ai,a',e capacit&! capacit&! I$ t#e eterans3 ospita,3s order order is accepted5 @@ )nits norma,,& so,d to reg),ar c)stomers (o),d 'e ,ost to a competitor! T#e contract gi-en '& t#e #ospita, (o),d reim')rse t#e eterans3 ospita,3s s#are o$ Marc# man)$act)ring costs5 p,)s pa& a $i*ed $ee >pro$it? o$ +@@5@@@! >T#ere (o),d 'e no -aria',e marketing costs inc)rred inc)rred on t#e #ospita,3s )nit!? "#at impact (o),d accepting t#e eterans3 eterans3 ospita, contract contract #a-e on Marc# income% A! + 454@@5@@@ C! +>45=@5@@@? B! +> 2 2@5 @5@@ @@@? @? D! + @@ @@5@ 5@@@ @@

*ci-

! Re$erring to )estion )estion No! 7=5 (#at is t#e impact on its pro$it pro$it i$ er'atim (ere to ')& 485@@@ 485@@@ 'o*es% A! Additiona, pro$it o$ +45@@@5@@@! +45@@@5@@@! C! Addit Additiona iona,, pro$it pro$it o$ +=/ +=/5@@@ 5@@@!! B ! A dd ddi titio na na , p ro ro$ it o$ o$ +4 +45 8 8@ 5@ 5@@@ ! D! De ccrre as ase in in pr pro$ it o$ o$ +6 +6 8 8 5@ 5@@ @! @!

)estion Nos! Nos! 7 t#ro)g# 4@4 are 'ased on t#e $o,,o(ing: $o,,o(ing: Medica, ca, S)pp,& Compan& prod)ced prod)ced #&dra),i #&dra),ic #oists #oists t#at (ere )sed '& #ospita,s #ospita,s to mo-e 'edridden patients! T#e costs o$ man)$act)ring and marketing #&dra),ic #oists at t#e compan&3s norma, -o,)me o$ =5@@@ )nits per mont# are s#o( 'e,o(:

34


*c-iii

! Medica, Medica, S)pp,& Compan& Compan& #as an opport)ni opport)nit& t& to enter enter a $oreign $oreign market market in (#ic# price competition is keen! An attraction o$ t#e $oreign market is t#at demand t#ere is greatest greatest (#en demand in t#e domestic market is ;)ite ,o( t#)s id,e prod)ction $aci,ities co),d 'e )sed (it#o)t a$$ecting domestic ')siness! An order $or 45@@@ )nits is 'eing so)g#t at a 'e,o(1norma, price in order to enter t#is market! S#ipping costs $or t#is order (i,, amo)nt to +/@ per )nit5 (#i,e tota, costs o$ o'taining t#e contract >marketing >marketing costs? (i,, 'e +9@5@@@! No ot#er -aria',e marketing marketing costs (o),d 'e re;)ired on t#is order! order! Domestic ')siness ')siness (o),d 'e )na$$ected )na$$ected '& t#is order! "#at is t#e minim)m )nit price s#o),d Medica, S)pp,& Compan& consider $or t#is order o$ 45@@@ )nits% A! +=5/@ C! + =5 =5 /7 /7 @ B! += +=5@@@ D! +9587@

)estion Nos! 4@8 and 4@= are 'ased on t#e $o,,o(ing: Marc)s
*ci*

! An in-entor& o$ o$ 8=@ )nits o$ an o'so,ete mode, o$ t#e #oist remains remains in t#e stockroom! stockroom! T#ese m)st 'e so,d t#ro)g# reg),ar c#anne,s at red)ced prices5 or t#e in-entor& (i,, soon 'e -a,)e,ess! "#at is t#e minim)m price t#at (o),d 'e accepta',e in se,,ing t#ese )nits% A! +=5@@ C! +=5@@@ B! +958@@ D! + @@

c

!

A proposa, proposa, is recei-ed recei-ed $rom an o)tside o)tside contractor contractor (#o (i,, make make and s#ip 45@@@ 45@@@ #&dra),ic #&dra),ic #oist )nits per mont# direct,& to Medica, S)pp,&3s c)stomers as orders are recei-ed $rom Medica, S)pp,&3s sa,es sta$$! sta$$! Medica, S)pp,&3s $i*ed $i*ed marketing costs (o),d 'e )na$$ected5 )na$$ected5 ')t its -aria',e marketing costs (o),d 'e c)t '& 8@ percent $or t#ese 45@@@ )nits prod)ced '& t#e contractor! contractor! Medica, S)pp,&3s p,ant (o),d operate operate at t(o t#irds o$ its norma, ,e-e,5 and tota, a,,ocated $i*ed man)$act)ring man)$act)ring costs $or t#ese 45@@@ )nits (o),d 'e c)t '& =@ percent! percent! "#at in1 #o)se )nit cost s#o),d 'e )sed to compare (it# t#e ;)otation recei-ed $rom t#e s)pp,ier% A! + =5/6@ C! + 9589@ B! + =5@@@ D! + = 59 596@

ci

Ass)me t#e same same $acts as in re;)irement re;)irement No! 4@4 e*cept e*cept t#at t#e id,e $aci,ities (o),d (o),d 'e )sed )sed to prod)ce 2@@ modi$ied #&dra),ic #oists per mont# $or )s in #ospita, operating rooms! T#ese modi$ied #oists co),d 'e so,d $or +75@@@ eac#5 (#i,e t#e costs o$ prod)ction (o),d 'e +5@@ per )nit -aria',e man)$act)ring e*pense! aria',e aria',e marketing costs (o),d 'e +45@@@ per )nit!
!

In order to prepare t#e 'id $or t#e 2@@5@@@ ',ankets5 Andrea Andrea Lig#ter5 cost acco)ntant5 #as gat#ered t#e $o,,o(ing in$ormation a'o)t t#e cost associated (it# t#e prod)ction o$ t#e ',ankets! Direct materia, Direct ,a'or Direct mac#ine costsQ aria',e o-er#ead
+ 4!@ per po)nd o$ $i'ers + /!@@ per #o)r +4@5@@ per ',anket + =!@@ per direct ,a'or #o)r + 2!@@ per direct ,a'or #o)r + 85 85 @ @ @ pe r 45 @@ @@@ ', ', an anke ts ts + @!@ per ',anket 6 po)nds per ',anket 9 ',ankets per DL 9@H

cii

! T#e minim)m minim)m price per ',anket ',anket t#at Marc)s Marc)s
ciii

! Using Using t#e $),,1cost $),,1cost criteria and t#e ma*im)m ma*im)m a,,o(a',e a,,o(a',e ret)rn ret)rn speci$ied5 $ied5 Marc)s Marc)s
35


36

i

!

Ans(er: C Cost o$ a,ternati-e se,ected Cost o$ a,ternati-e re0ected Incrementa, cost

+2@@5@@@ 6@5@@@ +4@5@@@

ii

! Ans(er: A T#e compan& needs to p)rc#ase 5@@@ )nits ear,ier t#an t#eir sc#ed),ed 5@@@1)nit mont#,& p)rc#ase! ence5 t#e a-erage in-estment $or t#e in-entor& is >5@@@ * +6@  8? or +456@5@@@! T#e opport)nit& cost is +4=85@@@ or >+456@5@@@ * @!@2?!

iii

!

Ans(er: A Additiona, re-en)e a$ter re(ork re(ork >895@@@>48  9? Less Additiona, cost >895@@@ * 8? Additiona, pro$it

+4785@@@ 925@@@ +4995@@@

iv

! Ans(er: B T#e on,& re,e-ant o)t1o$ pocket cost is t#e -aria',e se,,ing e*pense (#ic# is +9@! T#e sa,e t#r) t#e reg),ar c#anne,s in-o,-es an opport)nit& cost o$ +49@! aria',e se,,ing e*pense >9@H * 4@@? 9@ Opport)nit& cost 49@ Tota, 42@

v

!

vi

vii

viii

i-

-

-i

-ii

!

!

!

!

!

!

Ans(er: C Reg),ar -aria',e cost O-ertime premi)m Re,e-ant cost per )nit

+2!@@ 4!@ +7!@

Ans(er: B <),, cost
@!@@ 8@!@@ =@!@@

>42@5@@@75@@@?

Ans(er: C Cost o$ 45@@@ kg at ,atest price >45@@@ * 2!/@? Add e*cess price inc,)de on t#e remaining 95@@@ 95@@@ kg! 95@@@ * >2!/@  2!=@? Re,e-ant cost

25/@@ 456@@ 4@5=@@

Ans(er: B Direct materia,s >85@@@ P 4@? Direct ,a'or >85@@@ P 48? aria',e o-er#ead >85@@@ P 6? Increase in -aria',e cost d)e to o-ertime >85@@@ P 49? Incrementa, cost

8@5@@@ 895@@@ 485@@@ 825@@@ 295@@@

Ans(er: B aria',e costs Additiona, $i*ed costs costs Minim)m 'id price Ans(er: B Direct materia, Direct ,a'or aria',e se,,ing e*penses Tota, Add +ro$it per )nit Se,,ing price

+658@ 4=5/@ +/@5@@@

>=6@5@@@  895@@@? >9@5@@@  895@@@? >295@@@  895@@@? >885@@  45@@?

Ans(er: B Re,e-ant cost to make and se,,: Direct materia,s Direct ,a'or aria',e O Red)ced se,,ing e*penses >=@ * @!@6? Add3, $i*ed cost >8@5@@@  5@@@? Minim)m se,,ing price

+4!@@ 88!@ =!@ +94!@@ 4!@@ +6!@@

=7 6 2 42 9 /

! Ans(er: B T#e compan& #as no e*isting capacit&! T#e minim)m se,,ing price $or t#is specia, sa,es s#o),d e;)a, t#e reg),ar se,,ing price p,)s additiona, e*penses!

Reg),ar se,,ing price Additiona, e*penses Minim)m se,,ing price

+42 4 +47

-iii

Ans(er: A Direct materia,s 8@!@@ Direct ,a'or 4!@@ aria',e o-er#ead 48!@@ aria',e s#ipping and #and,ing =!@@ Lost contri')tion margin  LB96 >4@5@@@  45@@@? 4@!@@ Minim)m price 6@!@@ T#e ,ost contri')tion margin on reg),ar sa,e is re,e-ant 'eca)se 'eca)se t#e compan& is operating at capacit&! capacit&! In a specia, sa,e (#erein t#e compan& #as to gi-e )p some o$ its reg),ar )nits5 t#e re,e-ant costs consist o$ incrementa, costs p,)s an& opport)nit& costs!

-iv

!

-v

!

Ans(er: D Direct materia,s Direct ,a'or aria',e o-er#ead aria',e se,,ing e*pense Additiona, pro$it >9@5@@@5@@@? >9@5@@@5@@@? Re;)ired se,,ing price

9!@ 4@!@@ =!@@ 4!@@ 2!@@ 86!@

! Ans(er: C T#e ma*im)m n)m'er o$ )nits in reg),ar sa,es t#at Ben0ing co),d a$$ord to ,ose e;)a,s t#e ;)antit& t#at pro-ides reg),ar contri')tion margin t#at matc#es t#e contri')tion margin pro-ided '& specia, sa,e! Contri')tion margin $rom specia, sa,e 45@@@ >49  2? 65@@@ Di-ided '& reg),arCM >8@  2?  48 Ma*im)m N)m'er o$ )nits @@ To i,,)strate t#e so,)tion: Contri')tion margin $rom specia, sa,e Less Decrease in reg),ar sa,es3 contri')tion margin >@@ * 48? E$$ect on pro$it

65@@@ 65@@@ NIL

-vi

!

-vii

!

Ans(er: A Tota, contri')tion margin $rom specia, sa,e>45@@@ * +!@? +285@@ Less Additiona, $i*ed costs =@5@@@ +ro$it $rom specia, sa,e +85@@ Less Decrease in contri')tion margin on reg),ar Sa,e 85@@@>+=7  +88!@? ==5@@@ Additiona, pro$it +475@@ +,ease re$er to So,)tion So,)tion $or N)m'er N)m'er regarding detai,s o$ contri')tion contri')tion margin per )nit!

-viii

!

-i-

--

Ans(er: B T#e ma*im)m decrease in reg),ar sa,e  Contri')tion margin $rom specia, sa,eUnit contri')tion margin on reg),ar sa,e >9@@ * @!8@?  >8!@@ 14!@? 14!@?  46@

Ans(er: C Se,,ing price Re,e-ant cost per )nit: Reg),ar cost per )nit Less: Commission += * 8=? Net amo)nt Incrementa, $i*ed $i*ed cost cost >+4@ =@@? Ad-antage per )nit5 B)& N)m'er o$ )nits Increase in pro$it

+6!@@ +/!@ +@!/ 8!@@

>8!/? +9!/ @!@

!8 +@!/ =@@ + 88

! Ans(er: D Additiona, pro$it: =5@@@ * >/@  @?  6@5@@@ !

Ans(er: A Specia, price Re,e-ant cost: Direct materia,s Direct ,a'or

=8 9 48

aria',e o-er#ead Unit contri')tion margin Units ordered Additiona, pro$it --i

!

Ans(er: A Sa,es Less: a aria',e prod)ction cost Additiona,
6

88 4@ 85@@@ 8@5@@@

6@5@@@ >45@@ * =@? >45@@ * 8!@?

95@@@  5@ @ @ =5/@

=5/@ 6!8@

--ii

! Ans(er: B T#e minim)m se,,ing price s#o),d e;)a, t#e re,e-ant cost to prod)ce and se,, a )nit o$ prod)ct! Direct materia,s +@ Direct ,a'or 8@ aria',e o-er#ead >+4@ * @!8? 8 Se,,ing e*pense >+4 * @!9? 6 Minim)m se,,ing price +/2

--iii

! Ans(er: C T#e compan& #as no e*cess capacit& capacit& to 'e de-oted to t#e prod)ction o$ additiona, )nits $or specia, specia, sa,e! In a specia, sa,e decision (#ere t#ere is no e*cess capacit&5 t#e minim)m se,,ing price m)st 'e e;)a, to t#e market price ,ess an& a-oida',e e*penses! Se,,ing price +4@@ Less A-oida',e se,,ing e*pense >+4 * @!9? 6 Minim)m se,,ing price + 79

--iv

! Ans(er: D T#e 'ook -a,)e o$ t#e o,d e;)ipment is a s)nk cost and t#ere$ore not a re,e-ant one! A,so5 t#e re,ated cost on o)tstanding note are irre,e-ant! T#e& are not a$$ected '& a decision!

--v

!

--vi

--vii

--viii

--i-

---

Ans(er: D Re,e-ant Costs BetaetaDirect materia,s 9!@@ 2@!@@Direct 2@!@@Direct ,a'or4@!@@ 9/!@@@!/ * 8!@? 8!@? 4!/ Re,e-ant cost Make /!/ T#e ma*im)m p)rc#ase price5 i$ e-er t#e compan& #as to decide ')&ing ')&ing t#e prod)ct5 is +6!/! An& amo)nt #ig#er t#an +6!/ (i,, necessari,& increase t#e )nit cost o$ t#e prod)ct! !

!

!

!

Ans(er: B Direct materia,s Direct ,a'or aria',e o-er#ead A-oida',e $i*ed o-er#ead Tota, re,e-ant cost to make

695@@@ 465@@@ 25@@@ 65@@@ 795@@@

Ans(er: D Direct materia,s Direct ,a'or aria',e o-er#ead Additiona, contri')tion margin margin Tota, re,e-ant cost to make Ans(er: B aria',e cost to make parts Cost ')& Cost sa-ings  Make decision Ans(er: A Direct materia,s Direct ,a'or aria',e o-er#ead A-oida',e $i*ed o-er#ead

695@@@ 465@@@ 25@@@ 465@@@ 4@95@@@

>=@5@@@ * 48? >=@5@@@ * 4?

=6@5@@@ 9@5@@@ 7@5@@@

2@5@@@ 4=5@@@ 9@5@@@ 95@@@

Re,e-ant cost  make +)rc#ase price Ad-antage  Make ---i

---ii

!

!

Ans(er: A Direct materia,s Direct ,a'or aria',e o-er#ead Tota, -aria',e cost Less +)rc#ase cost A-oida',e $i*ed cost Add )na-oida',e
4=/5@@@ 495@@@ 25@@@

695@@@ 465@@@ 25@@@ 225@@@ 4@95@@@ 465@@@ 5@@@ 845@@@

Ans(er: B +)rc#ase cost >85@@@ * +4? Re,e-ant cost to make: aria',e cost >85@@@ * +46?  25@@@ A-oida',e $i*ed cost >25@@@ * @!8? Additiona, cost  B)& B)& >Decrease in pro$it? pro$it?

+=@5@@@ +895@@@ 85@@@

A,ternati-e comp)tation comp)tation $or re,e-ant cost to make: Tota, cost >85@@@ * +46? Less )na-oida',e $i*ed cost >25@@@ * @!/? Re,e-ant cost to make ---iii

---iv

---v

---vi

!

!

!

!

Ans(er: C Cost o$ p)rc#ase >85@@@ * +4? Re,e-ant cost  make: aria',e aria',e cost >85@@@ * +46?  +25@@@ A-oida',e $i*ed cost >+25@@@ * @!8? Opport)nit& cost  rent Cost sa-ings  B)& >increase in pro$it?

Ans(er: B Direct materia, Direct ,a'or aria',e o-er#ead A-oida',e $i*ed cost Tota, re,e-ant costs 1 Make +)rc#ase cost Add net sa-ings Tota, Less: Cost to make Opport)nit& cost

---vii

!

+=85@@@ 65@@@ +865@@@

+=@5@@@ +895@@@ 85@@@ 65@@@

Ans(er: C Re,e-ant costs to make Direct materia,s Direct ,a'or aria',e o-er#ead S)per-isor3s sa,ar& Opport)nit& costs5 rent Tota, Re,e-ant cost to ')& >45@@@ * +8@? Ad-antage 1 B)& I$ t#e compan& (o),d p)rc#ase t#e )nits5 )nits5 it (o),d sa-e +8@5@@@! Ans(er: B Cost o$ ink cartridges >5@@@ * +4? Less: Re,e-ant cost to prod)ce >5@@@ * +2? Additiona, cost i$ ink cartridges are p)rc#ased p)rc#ased

865@@@ + 95@@@

=85@@@ +> 85@@@?

+ 7@5@@@ 48@5@@@ 45@@@ =@5@@@ 65@@@ =8@5@@@ =@@!@@@ + 8@5@@@

+/5@@@ 9@5@@@ +=5@@@

>8@5@@@ P 6? >8@5@@@ P=@? >8@5@@@ P 48@ >8@5@@@ P 7?

48@5@@@ 6@@5@@@ 89@5@@@ 42@5@@@ 4549@5@@@

>8@5@@@ P 6@?

458@@5@@@ 85@@@ 45885@@@ 4549@5@@@ 25@@@

Ans(er: A +)rc#ase price and,ing cost >8@H * +45@@@? Tota, Cost to make >8458@@  25@@@?Q Increase in )nit cost i$ goods are p)rc#ased

45@@@ =5@@@ 425@@@ 4=58@@ 952@@

Q485@@@ * 8  =?  25@@@ ---viii

!

---i-

-l

-li

!

!

!

Ans(er: A Cost to make: Direct materia,s Direct ,a'or aria',e o-er#ead A-oida',e $i*ed O Re,e-ant cost +)rc#ase costs Decrease in pro$it in pro$it

+4@5@@@ 5@@@ 5@@@ 65@@@ +865@@@ =@5@@@ + 95@@@

>8@H * =@5@@@? >45@@@ P =@?

Ans(er: B Re,e-ant costs to make per )nit: Direct materia,s Direct ,a'or aria',e o-er#ead Re,e-ant cost  to make +)rc#ase price per )nit Increase in per )nit cost i$ p)rc#ased

6 !@ @ 9 !@ @ 4!@@ 44!@@ 48!@ 4!@

Ans(er: A Direct materia,s Direct ,a'or aria',e o-er#ead A-oida',e $i*ed o-er#ead >=@5@@@ * @!8? Tota, re,e-ant cost +)rc#ase cost Additiona, cost i$ p)rc#ased

4@5@@@ 5@@@ 5@@@ 65@@@ 865@@@ =@5@@@ 95@@@

Ans(er: C Direct materia,s Direct ,a'or aria',e o-er#ead AA-oida',e $i*ed cost Tota, Tota, per )nit N)m'er o$ )nit Tota, Add sa-ings $rom t#e man)$act)re o$ ot#er prod)ct Tota, Tota, re,e-ant cost  make Tota, p)rc#ase cost >4@5@@@ * =@? Ad-antage B)&

= !@ @ 4!@@ 6 !@ @ =!@@ 8/!@@ *4@5@@@ 8/@5@@@ 95@@@ =45@@@ =@@5@@@ 45@@@

-lii

! Ans(er: D T#o)g# t#e pro',em dea,s (it# trans$er o$ goods $rom one di-ision to anot#er di-ision5 t#e so,)tion $oc)ses on make on ')& decision approac#! +)rc#ase price5 o)tside s)pp,ier 4!8 aria',e cost to make >4@5@@@  4@5@@@? 4!@@ Additiona, )nit cost to t#e compan& @!8 Units to 'e p)rc#ased 4@5@@@ Decrease in Dana3s pro$it i$ goods are p)rc#ased 85@@

-liii

!

-liv

Ans(er: C Tota, p)rc#ase cost >5@@@ * /!/? Less Re,e-ant cost to make Direct materia,s P 8! Direct ,a'or P =! aria',e o-er#ead P 4! A-oida',e $i*ed cost P @! Opport)nit& cost Net sa-ing  p)rc#ase

=25/@ 485@@ 4/5@@ / 5 @ @ 85@@ 6 5@ @ @

! Ans(er: D T#e so,)tion is made in e;)ation $orm5 )sing &  a V '* $or 8 a,ternati-es: Let *  indi$$erence point in )nits Make: &  4@5@@@ V 44* B)&: &  6@5@@@ V 48!2/* 4@5@@@ V 44*  6@5@@@ V 48!2/* 4!2/*  6@5@@@

965@@@ >/58@?

*  925@@@ -lv

!

-lvi

!

Ans(er: C Direct materia,s Direct ,a'or aria',e o-er#ead A-oida',e $i*ed o-er#ead Tota, re,e-ant cost

2@5@@@ 4=5@@@ 9@5@@@ 8@5@@@ 4=5@@@

Ans(er: B

SodaLemomade Se,, Se,,in ingg

pric price6 e6!@ !@@ @!@ !@@ @aaria' ria',e ,e cost cost 4!@ 4!@4! 4!@@ @@Co Cont ntri ri') ')tition on marg margin in9! 9!@ @9! 9!@@ @@+r +roc oces essi sing ng #o)rs=9CMr4!@4!@@9 >9 #o)rs * +4!@? aria',e cost per )nit Se,,ing price

+6!@@ 4!@@ +/!@@

-lvii

! Ans(er: C +rod)ct B #as a greater contri')tion margin per )nit >+4 1 +48  +=? t#an +rod)ct A >+48 1 +4@  +8?! T#e compan& s#o),d prod)ce t#e ma*im)m )nits it can se,, o$ +rod)ct B >8@5@@@? and )se t#e rest o$ t#e mac#ine #o)r capacit& to prod)ce 4@@5@@@ )nits o$ +rod)ct A!

-lviii

!

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Ans(er: D +rod)ction +rod)cti on order: Y5  +rod)ct : +rod)ct Y: Tota, capacit&  M Mac#ine #o)rs de-oted to +rod)ct Y >25@@@ * =? o)rs a-ai,a',e to  +rod)ction o$ : : 425@@@  6  =5@@@

6@  6  4@ 98  =  49 985@@@ 895@@@ 425@@@

!

Ans(er: B +rod)ction order: B,enderE,ectric Mi*er+)rc#ase price 8@ =2aria',e =2aria',e cost to make: Direct materia,s 6 44 Direct materia,s 9 7 O-er#ead Q>46  4@? P 6 48 Tota,> Tota,> 46? >=8?Additiona, cost i$ p)rc#ased p)rc#ased 9 6Additiona, cost per #o)r >B,ender5 4 #r Mi*er 8 #o)rs? #o)rs? 9 = Since it (i,, cost Mar& +9 per #o)r to ')& B,ender and on,& += i$ E,ectric Mi*er is p)rc#ased5 it (i,, prod)ce a,, o$ B,ender3s re;)irement and 0)st p)rc#ase )nits o$ e,ectric mi*er t#at cannot 'e accommodated '& t#e remaining capacit&! +rod)ct: B,ender E,ectric Mi*er W@5@@@  >8@5@@@ P 4?X  8 +)rc#ase: E,ectric Mi*er >825@@@  45@@@? l

li

!

!

Ans(er: A CM  +rod)ct A CM  +rod)ct B Di$$erence in contri')tion margin

=68 * 45@@@ 9= * 45@@@

8@5@@@ 45@@@ 4=5@@@

425@@@ 45@@@ =5@@@

Ans(er: A Based on DL

lii

liii

liv

+rod)ctsUCMDL)nitCM +rod)ctsUCMDL)nitCMDL+riorit&A74!@7! DL+riorit&A74!@7!@4STB4@4!6!6/8ndC28!@9! @4STB4@4!6!6/8ndC28!@9!@@=rd @@=rd Based on M +rod)ctsUCMM)nitCM +rod)ctsUCMM)nitCMM+riorit&A79!8!@ M+riorit&A79!8!@=rdB4@8!@4stC28!=!88nd =rdB4@8!@4stC28!=!88nd ! Ans(er: D +,asticMeta,RC +,asticMeta,RC  make 44!@@ 44!@@ 4=!@@RC  B)& 4!@ 4/!@Additiona, Cost1B)& 9!@ 9!@o)rs re;)ired)nit =  9!Additiona, cost #r! 4!@ 4!@+riorit& 4st 8ndCapacit& >mac#ine #o)rs? 925@@@M )sed 1 +,astic >/5@@@ * =? 845@@@A-ai,a',e M to to Meta,8/5@@@M Meta,8/5@@@M )sed 1 Meta, >65@@@ * 9!@? >8/5@@@?+)rc#ase o$ Meta, >445@@@ >445@@@  65@@@? 5@@@ ! Ans(er: A omeDe,)*e+roSe,,ing omeDe,)*e+roSe,,ing price262@Direct materia,s>46?>8@?>47?Direct ,a'or>4@?>4?>8@?aria',e ,a'or>4@?>4?>8@?aria',e o-er#ead> 2?>48? >46?CM)nit89428+rocessing >46?CM)nit89428+rocess ing #o)r>s?  4  4!  8CMDL8948 8CMDL8948 48!@+ro$ita'i,it& rank4st=rd8nd ! Ans(er: B Unit contri')tion margin: +rod)ct A +48  +4@ +8 +rod)ct B +4  +48 +=

Contri')tion margin per #o)r: +rod)ct A +rod)ct B

+8  @!2 +=  4!8

+8!@ +8!9@

Tota, capacit& in #o)rs Less #o)rs )sed '& +rod)ct A 8@@5@@@ * @!2 A-ai,a',e #o)rs $or $or prod)ction o$ +rod)ct B Less #o)rs '& +rod)ct B 485@@@ * 4!8 N)m'er o$ )nits to 'e prod)ced: +rod)ct A +rod)ct B

=@5@@@ >46@5@@@? 47@5@@@ >47@!@@@? 8@@5@@@ 485@@@

+rod)ct +rod)ct A #as #ig#er contri')tion contri')tion margin per #o)r! T#e compan& compan& s#o),d prod)ce t#e ma*im)m )nits it can se,, o$ +rod)ct A and )se t#e rest o$ t#e mac#ine #o)r capacit& to prod)ce )nits o$ +rod)ct A in order to ma*imi.e its pro$it! lv

lvi

!

!

Ans(er: B CM per #o)r: +rod)ct : @ +rod)ct Y: 692 T#e 8@5@@@ #o)rs >@!2 * 85@@@? 85@@@? (i,, 'e de-oted to t#e prod)ction o$ ! Tota, Tota, contri')tion margin: >8@5@@@ * 4@? V >5@@@ * 2? Ans(er: A Se,,ing price per )nit  si,-er po,is# Less -aria',e costs: Grit ==/ >+8@  9? Ingredients5 direct ,a'or and -aria',e O aria',e se,,ing costs Contri')tion margin per )nit

4@ 2 89@5@@@

+9@ +  8 =

Minim)m n)m'er o$ 0ars o$ si,-er po,is# to 'e prod)ced: A-oida',e $i*ed costs  Contri')tion Contri')tion margin per 0ar +65@@@  +/

== + /

25@@@

T#e so,)tion )sed t#e se,,ing price o$ +8@ as cost o$ Grit==/ 'eca)se t#ere (as )n,imited demand $or t#e c,eaning po(der! I$5 #o(e-er5 t#e demand $or t#e c,eaning po(der is ,imited5 t#e recommended recommended so,)tion (o),d )se +46 as t#e cost o$ Grit ==/! lvii

!

lviii

!

li-

!

446  7@

86 42 2

Ans(er: C Se,,ing price a$ter $)rt#er processing +2!/ Se,,ing price i$ not processed $)rt#er /!8@ Additiona, sa,es per )nit )nit 4! N)m'er o$ )nits 85@@@ Additiona, tota, sa,es +=25/@ Less additiona, processing costs ==5/@ Increase in pro$it i$ t#e prod)ct is processed + 5@@@ Beca)se $)rt#er processing (i,, pro-ide more pro$it per )nit5 t#e compan& s#o),d process $)rt#er!

l-

!

l-i

!

l-ii

Ans(er: D Increase in se,,ing price Additiona, processing processing cost Addition pro$it per )nit

Ans(er: D Additiona, sa,es Additiona, costs Additiona, pro$it

>=@5@@@  8@5@@@? >/5@@@ V 45@@@?

+4@@5@@@ 7@5@@@ + 4@5@@@

Ans(er: A YAdditiona, YA dditiona, sa,es -a,)e4@=9Additiona, processing costs4=@Incrementa, >decrementa,? pro$it per )nit>? 9I$ +rod)ct Y is processed $)rt#er5 pro$it (i,, increase '& +465@@@ >95@@@ * 9?! Ans(er: A Additiona, Sa,es +rice +rice Additiona, Cost Additiona, pro$it

>6  @? >=@ * 9@H?

4!@@ 48!@@ =!@@

! Ans(er: C +rod)ct to 'e processed $)rt#er:+rod M+rod N
>decrease? in pro$it>4@5@@@?4@5@@@ l-iii

l-iv

!

Ans(er: C Re-en)es +4@95@@@ A-oida',e costs: costs: Cost o$ goods so,d + 695@@@ A-oida',e e*penses >+65@@@ V +25@@@? 495@@@ /25@@@ Segment margin + 865@@@ A segment segment is a potentia, potentia, candidate $or e,imination i$ its re-en)es are are ,ess t#an its a-oida',e a-oida',e costs! T#is is not t#e t#e case $or t#is segment! T#e compan& (i,, ,ose +865@@@ o$ income i$ t#is segment is e,iminated! !

Ans(er: A A-oida',e $i*ed cost >'ene$it? Lost contri')tion margin Decrease in pro$it

84@5@@@ 89@5@@@ =@5@@@

l-v

! Ans(er: D T#e ;)estion did not re;)ire an& comp)tation! I$ Mina Co! drops t#e Go,d Ore5 it (i,, ,ose t#e segment margin o$ +458@@5@@@5 a decrease in Mina Co!3s income! T#e amo)nt o$ direct $i*ed e*penses t#at (o),d 'e e,iminated (ere pre-io)s,& ded)cted $rom contri')tion margin5 and t#ere$ore5 not considered in t#e determination o$ t#e e$$ect on income!

l-vi

!

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l--

Ans(er: B A-oida',e common common e*penses >95@@@  8@5@@@? 8@5@@@? Segment margin ,ost Decrease in pro$it

!

Ans(er: A A-oida',e $i*ed e*penses: Man)$act)ring >4@5@@@  4@5@@@? 8 7@5@@@ Se,,ing >=@5@@@ * @!4@ * 8? 65@@@ Start )p cost >additiona, $i*ed e*pense > 25@@@? Net a-oida',e costs 225@@@ Indi$$erence point 225@@@  >88149? 445@@@ )nits At 445@@@ 445@@@ )nit ,e-e, >8 mont#s?5 t#e contri')tion contri')tion margin e;)a,s t#e a-oida',e costs! !

!

!

Ans(er: D Tota, Tota, Sa-ings  &ear >485@@@  4@@5@@@ ?  Less: Additiona, depreciation >7@5@@@  @5@@@? Loss on sa,e o$ o,d mac#ine >5@@@  @5@@@? Increase in pro$it

!

485@@@ >9@5@@@? >95@@@? 9@5@@@

Ans(er: A Lease arrangement: Renta, income > &ears? Cost o$ repairs5 ins)rance and propert& ta*es Net income

925@@@ 4@5@@@ =25/@

Sa,e arrangement: Net proceeds >85@@@ * @!7? Di$$erentia, income ,ease

8=5/@ 45@@@

Ans(er: A Additiona, contri')tion >6@5@@@ >6@5@@@ * @!8 * 49? Additiona, $i*ed se,,ing se,,ing costs Additiona, pro$it Se,,ing price aria',e e*penses: Materia,s Direct ,a'or aria',e o-er#ead aria',e se,,ing costs Unit contri')tion margin

l--i

+ 85@@@ =85@@@ + >/5@@@?

Ans(er: C Direct materia,s Direct ,a'or aria',e O

84@5@@@ 2@5@@@ 4=@5@@@ =8!@@ 4@!@@ 9!@ 8!=@ 4!8@

42!@@ 49!@@

4@!@@ 9!@ 8!=@

aria',e se,,ing cost Import d)ties +ermits and ,icenses >75@@@  8@5@@@? Minim)m se,,ing price

=!8@ 4!/@ @!9 88!4

Import d)ties are ass)med to 'e paid '& Adrena, Compan& 'eca)se o$ t#e nat)re o$ t#e sa,e! l--ii

! Ans(er: D T#e re,e-ant cost in se,,ing t#e )nits on #and >in$erior ;)a,it&? is +4!8@5 t#e -aria',e se,,ing costs t#e prod)ction costs5 t#o)g# -aria',e5 are considered irre,e-ant 'eca)se t#e& are #istorica, >s)nk? costs!

l--iii

!

Ans(er: C A-oida',e $i*ed costs: Man)$act)ring >@!9@ * @5@@@? Se,,ing >=5@@@ * @!8@? Tota,

8@5@@@ /5@@@ 8/5@@@

Contri')t Contri')tion ion margin margin i$ t#e compan compan&& #as to operate operate >6@5@@@ >6@5@@@  6 * @!=@ * 49? Disad-antage5 c,osing t#e p,ant l--iv

l--v

!

!

Ans(er: A Direct materia,s Direct ,a'or aria',e o-er#ead A-oida',e $i*ed o-er#ead >@!/ * ? A-oida',e -aria',e e*pense e*pense >4!8@ * 4  =? =? Re,e-ant cost  Make

985@@@ 985@@@ >45@@@?

4@!@@ 9!@ 8!=@ =!/ @!9@ 8@!7

Ans(er: A Batc# >eac# @ )nits?C)m A-e! rs449!8844!9@97 rs449!8844!9@97!482/!87646!2=62 !482/!87646!2=62 Tota, Tota, o)rs re;)ired: 46 * !2=62  7=!9

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l--vii

!

!

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!

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!

Ans(er: D Materia,s >2@@ * 9@!@? Direct ,a'or >7=!9@ * 48@? aria',e O >7=!9@ * 4@@? Tota,

=859@@ 4458@2 75=9@ 85792

Ans(er: A +rod)ction cost  /@ )nits: Materia,s >/@ * 9@!@@? Direct ,a'or >7=!9@  49!8? 48@ O >7=!9@  49!8? 4@@ Tota, +)rc#ase cost >/@ * /? Ad-antage  make Ans(er: A Sa,es price to Ka& Corp! Re(ork costs: Direct materia,s Direct ,a'or aria',e O >98@@ * @H? Commission >6259@@ * @!@=? Be$ore  ta* peso contri')tion Ans(er: A Reg),ar price Ded)ct: 8H commission >685@@ * @!@8? Sa,es disco)nt >685@@ * @!@8? Ne Net price Less additiona, con-ersion costs: Direct materia,s Direct ,a'or aria',e O 1 @H Net 'e$ore  ta* contri')tion

=@5=/ 75972 /574 9/5/2@ 658@ 259/@

6259@@ 658@@ 958@@ 854@@

>485@@? > 85@8? =!292

685@@ 458@ 458@

852@ =5=@@ 456@

85@@ 6@5@@@

/52@@ 858@@

l---

!

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!

Ans(er: D Cost o$ re(ork Direct ,a'or aria',e O >958@@ * @!@? Tota, Commission W@!@= >485@@ @!7/?X Tota,

658@@ 958@@ 854@@ 485@@ =2/ 48522/

Ans(er: A Sa,es price Less: Commission >858@@ * @!@=? Net contri')tion

85@@@ 456@ @599@

l---ii

! Ans(er: C Department = #as constraint in ,a'or #o)rs o$ /@! Dept! 4Dept! 8Dept! =Dept! 9A-ai,a',e DL=5/@@95@@85/@856@@DL DL=5/@@95@@85/@856@@DL re;)ired9@445@@@45@@45@@ re;)ired9@445@@@45@@45@@ @@9@8 9@@ 2@@ 11 2@@9@=85@@@85@@@85@@@45@@@ Tota,=59@@95=@@=5@@85=@@E*c Tota,=59@@95=@@=5@@85=@@E*cess ess >Constraint? =@@ 8@@> /@? /@? =@@ l---iii ! Ans(er: A T#e a-ai,a',e a-ai,a',e mac#ine #o)rs are s)$$icien s)$$icientt to prod)ce prod)ce t#e estimated estimated mont#,& mont#,& sa,es! sa,es! T#e sc#ed),e sc#ed),e $or mont#,& prod)ction s#o),d consider ma*imi.ing t#e )se o$ a-ai,a',e direct ,a'or #o)rs in Department = 'eca)se it is t#e on,& one (it# constraint! Dept! 4Dept! 8Dept! =Dept! 9A-ai,a',e M=5@@@=54@@85/@@=5=@@M re;)ired9@4 @@ @@45@@@45@@@9@8 9@@ 9@@ 11 2@@9@=85@@@85@@@ 45@@@45@@@ Tota,857@@857@@85@@@852@@E*ces Tota,857@@857@@85@@@852@@E*cesss >Constraint? 4@@ 8@@ /@@ @@ Tota, Tota, mac#ine #o)rs #o)rs re;)ired '& mont#,& )nit sa,es: >857@@ V 857@@ V 85@@@ V 852@@? 852@@? 4@56@@ l---iv

! Ans(er: B T#e ta',e s#o(ing t#e comparison o$ a-ai,a',e #o)rs and re;)ired #o)rs to prod)ce a,, t#e re;)ired )nits in n)m'er 28 indicated t#at Department = is s#ort '& /@ #o)rs! An& e*cess direct direct ,a'or #o)rs in t#e ot#er departments cannot 'e s(itc#ed to Department =!

l---v

! Ans(er: B T#e prod)ction p,an t#at (i,, ma*imi.e mont#,& pro$it s#o),d 'e 'ased on t#e pro$ita'i,it& o$ t#e t#ree prod)cts in terms o$ t#e )se o$ direct ,a'or #o)rs in Department =! + R O D U C T S9@49@=9@Se,,ing price per )nit+476+48=+46/aria',e )nit costsDirect materia,/4=4/Direct ,a'or66=24aria',e ,a'or66=24aria',e o-er#ead8/8@8Se,,ing o-er#ead8/8@8Se,,ing e*penses=89 Tota, Tota, -aria',e cost4@=/=7/Unit contri')tion margin+ margin+ 7=+ @+ /@No! o$ DL DL re;)ired  Dept ==18Contri')tion ==18Contri')tion margin per DL+ DL+ =41+ =Based on t#e a'o-e sc#ed),e5 +rod)ct 9@ is more pro$ita',e per #o)r t#an +rod)ct 9@43s and5 t#ere$ore5 a,, o$ t#e )nits re;)ired $or +rod)ct 9@ s#o),d 'e prod)ced! +rod)ct 9@= (o),d not )se an& direct ,a'or #o)rs in Department Department = and so a,, o$ t#e re;)ired )nits $or +rod)ct 9@= can 'e prod)ced! A-ai,a',e direct ,a'or #o)rs  Department =

85/@

o)rs )sed '& +rod)ct 9@ A-ai,a',e #o)rs $or $or +rod)ct 9@4

45@@@ * 8

85@@@ /@

+rod)ction )nits  +rod)ct 9@4

8@ * =

/@

+rod)ction: +rod)ct 9@4 +rod)ct 9@= +rod)ct 9@

8@ 9@@ 45@@@

A,ternati-e So,)tion: So,)tion: Since +rod)ct 9@4 is t#e ,ess pro$ita',e pro$ita',e per DL5 +rod)ct 9@= and 9@ (i,, 'e prod)ced in $),, and +rod)ct +rod)ct 9@4 (i,, 'e partia,,& prod)ced! Tota, re;)ired )nits5 +rod)ct 9@4 E;)i-a,ent )nits 'ased on constraint /@  = +rod)ction o$ +rod)ct 9@4

@@ 8@ 8 @

A,ternati-e ;)estion: ;)estion: "#at is t#e ma*im)m ma*im)m mont#,& contri')tion contri')tion margin t#at Constraint Constraint Compan& can can earn% +rod)ct 9@4 8@ P +7= + 8=58@ +rod)ct 9@= 9@@ P +@ 8@5@@@ +rod)ct 9@ 45@@@ P +/@ /@5@@@ Tota, contri')tion margin +44=58@ l---vi

!

Ans(er: B Costs inc)rred to make t#e order: Materia, >5@@@ * 9@?

+8@@5@@@

La'or >5@@@ * /8? Incrementa, $i*ed cost >specia, de-ice? Costs to 'e inc)rred

=6@5@@@ 9@5@@@ +6@@5@@@

Decrease in costs $or standard prod)cts: Materia, >@! * 46@5@@@? La'or >@! * +42@5@@@? Ot#er >@! * +425@@@ Decrease in costs Net incrementa, costs

+ 2@5@@@ 7@5@@@ 75@@@ +4/75@@@ +9845@@@

T#e amo)nts $or depreciation5 rent5 and #eat and ,ig#t are ass)med to 'e not a$$ected '& t#e specia, order! T#ere is no in$ormation pro-ided as to #o( po(er cost (as e*act,& inc)rred! l---vii

!

l---viii

!

l---i-

-c

!

!

Ans(er: D Costs to 'e inc)rred $or specia, order +6@@5@@@ @! * /85@@@? +=65@@@ +o(er >@! * 25@@@? 95@@@ Rent >@! * 8@5@@@? 4@5@@@ eat and Lig#t >@! * 85@@@? 45@@@ 45@@@ Tota, cost +645@@@ T#e amo)nt o$ $i*ed costs a,,ocated to specia, order (o),d 'e t#e costs t#at s#o),d #a-e 'een assigned to t#e standard sa,es t#at (o),d 'e cance,,ed! Ans(er: B Decr Decrea ease se in sa, sa,es es o$ stan standa dard rd pro prod) d)ct cts@ s@! !@@ * @@5 @@5@@ @@@@ Less -aria',e costs: Ma Materia, >46@5@@@ * @!? La'or >42@5@@@ * @!? O Ott#er >425@@@ * @!? Opport)nit& costs

+8@ +8@5@ 5@@@ @@ +2@5@@@ 7@5@@@ 75@@@

Ans(er: D Specia, sa,es >5@@@ * 49@? aria',e costs Contri')tion margin $rom specia, sa,e Less opport)nit& costs Increase in pro$it Ans(er: C Tota, o-er#ead rate per 'o* Less $i*ed o-er#ead a,,ocated per 'o*+4@5@@@5@@@  4@@5@@@ 'o*es aria',e o-er#ead rate per 'o*

4/75@@@ + /45@@@

+/@@5@@@ 6@@5@@@ 4@@5@@@ /45@@@ + 875@@@

+4@ 4@@ + @

-ci

! Ans(er: C T#e cost o$ materia,s sa-ed '& a decision decision o$ p)rc#asing t#e t)'es: is +=@@ * @!8@  + 6@

-cii

! Ans(er: B T#e re,e-ant cost to make t#e t)'es '& er'atim s#o),d e;)a, t#e amo)nt o$ cost sa-ings as $o,,o(s: Sa-ings on materia,s @!8 * +=@@ + 6@ La'o r @!4 * +8@@ 8@ O-er#ead @!4 * + @  Tota, sa-ings >re,e-ant cost? + 2 T#e ma*im)m amo)nt t#at er'atim er'atim is (i,,ing to pa& per 'o* o$ 89 t)'es m)st 'e +2!

-ciii

!

-civ

-cv

!

!

Ans(er: B Cost o$ making 485@@@ 'o*es: aria',e costs 485@@@ * 2 Additiona, $i*ed costs costs Tota,

4@5685@@@ 45@@@5@@@ 445685@@@

Ans(er: C Tota, p)rc#ase cost 485@@@ * 7@@ Tota, cost to make 485@@@ * 2 Sa-ings i$ p)rc#ased

4458@5@@@ 445685@@@ =/5@@@

Ans(er: A
Man)$act)ring Marketing Tota, To

=5@@@ * 458@@ =5@@@ * 459@@

Se,,ing +rice Less aria',e costs: Direct materia,s Direct ,a'or aria',e o-er#ead Marketing costs To Tota, Unit contri')tion margin Breake-en )nits -cvi

+ /59@@ +45@@@ 45@@ @@ @@ =5@@ + =57@@ /52@@5@@@  =57@@

85@@@ )nits

! Ans(er: C In as m)c# t#at t#ere (o),d 'e no c#ange in t#e amo)nt o$ $i*ed costs5 t#e recommended so,)tion (as made '& 0)st comparing t#e amo)nts o$ contri')tion margin 'ased on t#e re-ised data and t#e origina, in$ormation: Contri Contri')t ')tion ion margin margin 'ased 'ased on on ne( ne( esti estimat mates es =5@@ =5@@ * >65@@ >65@@  =5@ =5@@? @? Contri')tion margin 'ased on c)rrent estimates Decrease =5@@@ * >/59@@  =5@@? Decrease in pro$it A,ternati-e So,)tion: So,)tion: Tota, contri')tion margin =5 =5@@@ * >/59@@  =5@@? Less 65 >65@ @@@  =5 =5@@ @@?? Less
-cvii

!

-cviii

! Ans(er: C Direct materia,s Direct ,a'or aria',e aria',e o-er#ead S#ipping cost Cost o$ o'taining t#e order 9@5@@@  45@@@ Minim)m se,,ing price

-ci-

+=56@@5@@@ 958@@5@@@ +/52@@5@@@

4@5@@ 4@5@@5@@ 5@@@@ 445/@@5@@@ > 458@@5@@@?

445/@@5@@@ /52@@5@@@ =57@@5@@@ 4@5 4@5@@ @@5@ 5@@@ @@ /52@@5@@@ 85/@@5@@@ =57@@5@@@ > 458@@5@@@?

Ans(er: B @ >@@@ * =57@ =57@@? @? 4!7 4!7@5 @5@@ @@@@ Decrease in pro$it +> 2@5@@@? T#e reim')rsement $or $i*ed o-er#ead is an income $or Medica, ospita, Compan& 'eca)se t#e specia, order does not entai, additiona, $i*ed o-er#ead!

45@@@ 45@@ @@ / @ 9@ =5/7@

! Ans(er: D A,, t#e prod)ction costs5 costs5 'ot# -aria',e -aria',e and $i*ed5 are no ,onger re,e-ant re,e-ant 'eca)se t#e& are s)nk costs! To 'e re,e-ant to a decision5 decision5 t#e cost m)st 'e 'ot# -a,id -a,id and re,e-ant! re,e-ant! T#ere$ore T#ere$ore55 t#e on,& re,e-ant re,e-ant cost is t#e -aria',e -aria',e marketing marketing cost5 'eca)se i$ t#e )nits (i,, 'e so,d t#ro)g# reg),ar c#anne,5 +@@ (i,, 'e inc)rred!

c

! Ans(er: D T#e ma*im)m price at (#ic# t#e price c#arged '& t#e contractor (o),d indi$$erent to t#e cost to make t#e #oist is t#e tota, di$$erentia, cost or a-oida',e cost! Direct materia,s 45@@@ Direct ,a'or 45@@ aria',e o-er#ead @@ A-oida',e $i*ed o-er#ead 458@@ * @!=@ =6@ A-oida',e -aria',e marketing marketing cost @@ * @!8 4@@ Ma*im)m p)rc#ase price =596@

ci

!

Ans(er: A Direct materia,s Direct ,a'or

45@@@ 45@@

aria',e o-er#ead A-oida',e marketing marketing costs Opport)nit& cost W2@@ * >75@@@  5@@  45@@@?X  45@@@ Ma*im)m p)rc#ase price

@@ 4@@ 85@@@ 54@@

A 'etter )nderstanding )nderstanding o$ t#e so,)tion can 'e made '& dra(ing a sc#ed),e to comp)te comp)te income $or t#is a,ternati-e and compare it (it# t#e income s#o(n in so,)tion $or )estion No! 7/ as $o,,o(s:

Modi$iedReg),arSa,es/58@@5@@@8858@@5@@@a Modi$iedReg),arSa,es/58@@5@@@8858@@5@@@aria',e ria',e prod)ction costs: In #o)se prod)ction >85@@@ * =5@@@? 65@@@5@@@ >2@@ * 5@@?959@@5@@@ Contractor3s cost 45@@@ * 54@@ 54@@5@@@aria',e 54@@5@@@aria',e marketing costs Reg),ar >85@@@ * @@? V >45@@@ * 9@@? 459@@5@@@ Modi$ied >2@@ * 45@@@? 2@@5@@@85@@@5@@@ V 457@@5@@@? =57@@5@@@ cii

ciii

!

Ans(er: A Direct materia, >6 ,'s!  +4 +4!@? Direct ,a'or >@!8 #r!  +/ +/? Direct mac#ine cost >+4@',anket? aria',e aria',e o-er#ead >@!8 #r!  += +=? Administrati-e costs costs >+85@@45@@@? >+85@@45@@@? Minim)m 'id price

+7!@@ 4!/ 4@!@@ @!/ 8!@ +89!@@

! Ans(er: B Using t#e $),,1cost criteria and t#e ma*im)m a,,o(a',e ret)rn speci$ied5 Marc)s $rom Re;)irement 4? +89!@@ @!8 #r!  +2? 8!@@ S)'tota, +86!@@ A,,o(a',e ret)rn >@!4Q  +86? =!7@ Bid price +87!7@ Q@!@7>4  @!9@?  @!4

210220830 Relevant Costing by a Bobadilla

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