12-7 Prentice Company is considering dropping one of its product lines. What costs of the product line would be relevant to this decision? What costs would be irrelevant?
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The Johnny Pickles Brewing Company is considering adding a newpiece of equipment to the beer making process. No additional spacewill be required if the new equipment is added. Theequipment will result in an increase in production as well asimprovement in quality that should allow the brewery to increasethe price it charges for its premium beers. Determine if the itemsbelow are relevant to the decision to add additional equipment.
| Consideration | Relevant/Irrelevant |
| Rent on the building where the beer is made. No additionalspace required. | [ Select ] ["Relevant", "Irrelevant"] |
| The amount the brewery spends on raw materials | [ Select ] ["Relevant", "Irrelevant"] |
| The top line sales revenue for the brewery | [ Select ] ["Irrelevant", "Relevant"] |
| The cost of the new equipment | [ Select ] ["Irrelevant", "Relevant"] |
| The future salvage of the existing equipment | [ Select ] ["Irrelevant", "Relevant"] |
With respect to pricing, when a company offers a unique, indemand product, it is most likely a [ Select ] ["Cost Plus", "Target Pricing", "PriceTaker", "Market Leader", "Price Setter"] and it will most likely target a [ Select ] ["Cost Plus", "Price Setter", "MarketLeader", "Price Taker", "Target Pricing"] model for setting its price. Conversely, when a companyoffers a relatively undifferentiated product with relativelyaverage demand it would most likely be considereda [Select ] ["Target Pricing", "MarketLeader", "Price Taker", "Price Setter", "Cost Plus"] and would utilize a [ Select ] ["Market Leader", "Price Setter", "CostPlus", "Price Taker", "Target Pricing"] model for setting the price of its products.
The income statement for Bauer Online Real Estate Training ispresented below. The management team at the real estate trainingcompany is not pleased with the performance of their residentialreal estate training line and is considering dropping it. A coststudy of the residential training line has revealed that $42794 ofthe Selling and $33028 of the Administrative fixed expenses cannotbe avoided if the residential real estate training line is dropped.If the management at Bauer Online Real Estate Training decides todrop the line, what will the new company net income be? Calculateyour answer to the nearest whole dollar.
| Total | Residential | Commercial | |
| Sales Revenue | $527000 | $185000 | $342000 |
| Variable Costs | 112000 | 34000 | 78000 |
| Contribution Margin | 415000 | 151000 | 264000 |
| Fixed Costs: | |||
| Selling | 185000 | 88000 | 97000 |
| Administrative | 203000 | 94000 | 109000 |
| Total Fixed Expenses | 388000 | 182000 | 206000 |
| Operating Income (Loss) | $27000 | $(31000) | $58000 |
