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Exam 30: Cost-Revenue Analysis for Decision Making

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Question 41

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Tyro Manufacturing has a machine that requires frequent repairs. Production is stopped and as a result some shipment dates have not been met. The manager read in their industry's trade magazine about a new machine that has just been developed. Using the given headings, list the six steps of the decision making process. Relate each of the first five to this specific situation using the format provided. $\begin{array}{|l|l|}\hline \text { Step\quad\quad\quad\quad\quad\quad\quad } & \text { Relationship to Situation } \\\hline & \\\hline & \\\hline & \\\hline & \\\hline & \\\hline & \\\hline\end{array}$

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Question 42

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A cost that has already been incurred and is irrelevant for decision-making purposes is called a(n) ____________________ cost.

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Question 43

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Costs that are not directly traceable to a segment of a business are called

Income statements prepared on an absorption-costing basis normally are more useful for internal decision making than income statements prepared on a direct costing basis.

Using direct costing, the value of ending inventory of finished goods is:

Using the absorption method, the net income for year is:

Which of the following is NOT a step in the decision-making process?

The following information relates to a one-time special order from a flood relief organization for 200 of its book bags at $8.50. Current manufacturing costs are as follows. $\begin{array} { l r } \text { Direct Material per bag } & \$ 3.24 \\\text { Direct Labor } & 4.21 \\\text { Variable Manufacturing Overhead } & .55 \\\text { Variable Selling costs } & .76 \\\text { Fixed Manufacturing Overhead } & 1.25\end{array}$ Fixed manufacturing overhead is based on capacity of 4,500 units per year. Normal sales are 4,000 book bags per year. Only $0.46 of the selling costs will be incurred for this special order. What are the relevant costs regarding this special order? Pose one nonfinancial consideration regarding the acceptance or rejection of this special offer.

Bianca Jewel Box Manufacturing received an offer from a nonprofit organization for a one-time purchase of 2,000 of its Model RYA18261 at $20 each for distribution to flood victims in the South. Full capacity at Bianca is 25,000 units. Bianca currently expects to make 20,000 units in the current year and based all estimates on that expectation. There will be no delivery costs for this special order. The average costs to Bianca to produce one Model RYA18261 are $27 each as shown. $\begin{array}{lr}\text { Variable manufacturing costs } & \$ 11 \\\text { Fixed manufacturing costs } & 7 \\\text { Variable Selling \& Administrative costs } & 6 \\\text { Fixed Selling and Administrative costs } & \underline{3} \\\quad \text { Total } &\underline{ \$ 27}\end{array}$ Should Bianca accept this special offer? Explain your decision.

In managerial decisions, nonmanufacturing costs can be ignored.

Nabob Corporation is considering expanding into the Midwest. It is estimated that this new division would generate an average of $378,000 in sales per year. The variable manufacturing costs would be $187,000, variable selling costs would be $72,000, and controllable fixed costs would be $90,000. In addition, the company planned to allocate $85,000 of company common fixed costs to the new division. Is this a wise decision for Nabob Corporation? Why?

Companies often consider buying the parts for the products they make or making the parts they buy. List the factors management should consider when looking into making a part they have been purchasing.

Direct costing differs from absorption costing in that

Data for a firm's first year of operation is given below. The firm uses absorption costing. $\begin{array} { l r } \text { Units produced (no work in process) } & 6,000 \\\text { Units sold } & 5,000 \\\text { Units in ending inventory of finished goods } & 1,000 \\\text { Sales price for each unit } & \$ 75 \\\text { Variable manufacturing costs for each unit manufactured } & \$ 30 \\\text { Variable selling and admin. expenses for each unit sold } & \$ 16 \\\text { Fixed manufacturing costs for the year } & \$ 90,000 \\\text { Fixed selling and admin. expenses for the year } & \$ 65,000\end{array}$ 1. What is the cost of goods manufactured for the year? 2. What is the ending inventory of finished goods? 3. What is the cost of goods sold? 4. What is the net income (loss) for the year?

Which of the following is NOT a consideration when determining whether to continue making a part or to buy that part?

Which of the following cost amounts can be found in a firm's accounting records?

A cost that does not change regardless of the option selected need not be considered in the decision-making process.

Which is the final step in the decision-making process?

The inventory costing system not acceptable for financial reporting is ____________________ costing.

Which of the following is NOT a consideration regarding a special order?