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ACCT 2101 : FINAL ACCOUNTING

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azuremammoth471
15 Mar 2019
School
LSU
Department
Accounting
Course
ACCT 2101
Professor
All

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Which of the following are relevant in choosing between the alternatives. 35,000: variable costs, variable costs and fixed costs, revenues, fixed costs. At full capacity, you are at your max that you can make, given the same equip, factory, etc. 2. adler company manufactures a product with the following costs: The company normally sells 10,000 units at a price of each. Adler has a one-time opportunity to sell an additional 3,000 units at each in a foreign market, which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows: 74: net income would increase by ,000, net income would increase by ,000, net income would decrease 60,000, net income would increase 12,000. Explanation: chapter 7: keywords, sufficient capacity = this is good . May company could avoid ,000 in fixed overhead costs if it acquires the components externally.

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Related Questions

Tactical decision making

Tactical decision making means choosing among alternatives withan immediate or limited end in view. For example, a company mayaccept a special order for less than the normal selling price touse idle capacity. Tactical decisions tend to be short-runin nature; however, it should be emphasized that short-rundecisions often have long-run consequences. A general tacticaldecision-making model is outlined here.

1. Recognize and define theproblem.
2. Identify possible alternativesolutions to the problem, and eliminate any unfeasiblealternatives.
3. Identify the costs and benefitsassociated with each feasible alternative. Eliminate the costs andbenefits that are not relevant to the decision.
4. Compare the relevant costsand benefits for each alternative.
5. Assess qualitative factors.
6. Select the alternative with thegreatest overall benefit.

Identifying and comparing relevant costs and revenues is theheart of the tactical decision model. Relevant costs (revenues) arefuture costs (revenues) that differ across alternatives. (Revenuesare treated in the same way as costs, so we will simplify thediscussion by referring to costs.) All decisions relate to thefuture; so, only future costs can be relevant. In addition, thecost must differ from one alternative to another. If a future costis the same for more than one alternative, it has no effect on thedecision. Such a cost is an irrelevant cost.

Assume that Reeves Company is considering accepting a specialorder for $25 per unit when the normal selling price is $30 perunit. Reeves has enough excess capacity to make the order withoutdisplacing normal sales. The alternatives facing Reeves Company are(Select "Yes" for the statements that are applicable and "No" forthe items that do not apply):

Accept the special order. - Select your answer -YesNoItem1
Reject the special order. - Select your answer -YesNoItem2
Sell normal sales for $25 perunit. - Select your answer -YesNoItem3

Choose which of the following are relevant in deciding whetheror not to accept the special order. (Select "Yes" for thestatements that are applicable and "No" for the items that do notapply)

$25 price. - Select your answer -YesNoItem4
$30 normal price. - Select your answer -YesNoItem5
Variable cost of making the unitsin the special order. - Select your answer -YesNoItem6
Depreciation on factory equipmentused in making the special order units. - Select your answer -YesNoItem7
Increased property taxes on thefactory building which are due while the special order would bemade. - Select your answer -YesNoItem8

While cost and revenue information is important, otherinformation may be needed to make an informed decision. Thesenon-financial factors are termed qualitative and are often relevantin decision making. For example, in deciding whether to make acomponent in-house or purchase it from an outside supplier, thecompany may consider any difference in quality or in responsivenessto the company's production schedules.

“That old equipment for producing subassemblies is worn out,” said Bruce Truesdale, president of Truesdale Company. “We need to make a decision quickly.” The company is trying to decide whether it should rent new equipment and continue to make its subassemblies internally, or whether it should discontinue production of its subassemblies and purchase them from an outside supplier. The alternatives follow:

Alternative 1: Rent new equipment for producing the subassemblies for $60,000 per year.

Alternative 2: Purchase subassemblies from an outside supplier for $6 each.

Truesdale Company’s current costs per unit of producing the subassemblies internally (with the old equipment) are given below. These costs are based on a current activity level of 40,000 subassemblies per year:

Direct materials $ 1.50

Direct labor 3.00

Variable overhead 0.60

Fixed overhead ($0.75 supervision, $2.00 depreciation, and $2 general company overhead) 4.75

Total cost per unit $ 9.85

The new equipment would be more efficient and, according to the manufacturer, would reduce direct labor costs and variable overhead costs by 25%. Supervision cost ($30,000 per year) and direct materials cost per unit would not be affected by the new equipment. The new equipment's capacity would be 60,000 subassemblies per year. The total general company overhead would be unaffected by this decision.

Required:

1. The president is unsure what the company should do and would like an analysis showing the unit costs and total costs for each of the two alternatives given above. Assume that 40,000 subassemblies are needed each year.

a. What will be the total relevant cost of 40,000 subassemblies if they are manufactured internally as compared to being purchased?

b. What would be the per unit cost of the each subassembly manufactured internally?

2a-1. What will be the total relevant cost of 50,000 subassemblies if they are manufactured internally?

2a-2. What would be the per unit cost of subassembly?

2b-1. What will be the total relevant cost of 60,000 subassemblies if they are manufactured internally?

2b-2. What would be the per unit cost of subassembly?

#1 Which of the following correctly describes fixed and variable cost behavior as total volume increases?
A. Unit fixed costs stay the same and unit variable costs increase.
B. Total fixed costs stay the same and total variable costs increase.
C. Unit fixed costs decrease and total variable costs decrease.
D. Unit fixed costs decrease and unit variable costs decrease.
#2 The incremental profit generated by the sale of one additional unit is equal to the
A. contribution margin per unit.
B. selling price.
C. margin of safety.
D. incremental cost.
#3 Clipper Office Furniture uses cost-plus pricing with a 40% mark-up on total cost at capacity. The company is currently selling 40,000 units at $19.60 per unit. Each unit has a variable cost of $9. In addition, the company incurs $200,000 in fixed costs annually. If demand falls to 32,000 units and the company wants to continue to earn a 40% return, what price should the company charge?
A. $15.25
B. $21.35
C. $19.60
D. $27.44
#4 ABC company has $6.50 per unit in variable costs and $2.20 per unit in fixed costs at a volume of 40,000 units. If the company uses cost-plus 20% for pricing, which of the following should the company use to determine the price?
A. The company should use a unit cost of $8.70 per unit only at a volume of 40,000 units.
B. The company should use a unit cost of $8.70 at any volume level.
C. The company should use a unit price of $10.44 at any volume level.
D. The company should ignore fixed costs for cost-plus pricing.
#5 Which of the following is a grouping of overhead costs whose total is allocated using one allocation base?
A. Cost objective
B. Cost pool
C. Direct cost
D. Cost driver
#6 Which one of the following is the preferred alternative when deciding between two options?
A. Incremental profit is greater than under the other alternatives.
B. Revenues are greater than under the other alternatives.
C. Expenses are less than under the other alternatives.
D. No opportunity or sunk costs exist.
#7 The required rate of return used to calculate an investment’s net present value is related to the firm’s
A. contribution margin.
B. cost of capital.
C. total assets.
D. Price/Earnings ratio.
#8 A company is trying to decide whether to keep or drop the organic foods department in its grocery store. If organic foods are dropped, the manager will be laid off. What is the manager's salary in relation to the decision to keep or drop the department?
A. A variable cost and therefore relevant
B. Avoidable and therefore incremental
C. Sunk and therefore not relevant
D. A fixed cost and therefore not relevant
#9 The following information relates to Ajax Widgets during the year. There was no beginning inventory.
Units produced 11,000
Units sold 10,000
Units in ending inventory 1,000
Fixed manufacturing overhead $220,000
How much fixed manufacturing overhead will be expensed during the year (included in Cost of Goods Sold) using full costing?
A. $220,000
B. $200,000
C. $20,000
D. $10,000
#10 If the required rate of return is greater than the internal rate of return of a potential investment, the company should judge the investment as acceptable.
A. This is a True statement
B. This is a False statement
C. Not enough information provided.
#11 The basic concept involved in time value of money calculations is that
A. it is better to receive a dollar in the future than to receive a dollar today
B. incremental revenues must exceed incremental costs.
C. it is better to receive a dollar today than to receive a dollar in the future.
D. it can only be applied to positive cash flows
#12 Hanson Sports has three product lines: footballs, basketballs, and bats. Common costs are allocated based on relative sales. A product line income statement for the year ended December 31, 2016 follows:
Footballs Basketballs Bats Total
Sales $600,000 $800,000 $400,000 $1,800,000
Cost of goods sold 260,000 400,000 230,000 890,000
Gross margin 340,000 400,000 170,000 910,000
Less other variable costs 85,000 120,000 80,000 285,000
Contribution margin 255,000 280,000 90,000 625,000
Less direct salaries 50,000 60,000 45,000 155,000
Less common fixed costs 85,000 100,000 55,000 240,000
Net income $120,000 $120,000 -$10,000 $230,000
Since the profit for bats is a net loss, the company is considering dropping this product line. What is the incremental $ effect on total net income of dropping the Bats line?
#13 Right Air Supply sells a specialized air filter that has a variable cost of $10 each.
Fixed costs are estimated to be $700,000 across all levels of sales shown below.
Units Sold Unit Price CM per unit x Qty Fixed Costs Profit
90,000 $33 700,000
100,000 $31 700,000
110,000 $30 700,000
120,000 $28 700,000
Which price should Right Air Supply charge to maximize profits?
#14 Randolph Corporation sells a single product at a price of $275 per unit. Variable cost per unit is $135 and fixed costs total $356,860. If sales are expected to be $825,000, what is the company’s margin of safety?
#15 Roger Excavating Company experienced the following costs in 2016:
Direct materials $1.75 per unit
Direct labor $2.00 per unit
Variable manufacturing overhead $2.50 per unit
Variable selling $0.75 per unit
Fixed manufacturing overhead $50,000
Fixed selling $15,000
Fixed administrative $5,000
During 2016, the company manufactured 100,000 units and sold 80,000 units. If the average selling price per unit was $22.65, what is the amount of the company’s contribution margin per unit?