ACC 406 Chapter Notes - Chapter 3: Inkjet Printing, Cost Driver, Fixed Cost

64 views5 pages

bronzepig36

25 Jul 2016

School

Department

Course

Professor

For unlimited access to Textbook Notes, a Class+ subscription is required.

Document Summary

Cost behaviour: describes whether a cost changes when the level of activity changes. A cost is xed or variable with respect to some output measure or cost driver. Cost driver: a casual measurement that causes costs to change. Identifying and managing cost drivers helps mangers to better predict and control costs. Relevant range: the range of output over which an assumed cost relationship is valid for the normal operations of a rm. The relevant range limits the cost relationship to the range of operations that the rm normally expects to occur. Fixed costs: are costs that in total are content within the relevant range as the level of output increases or decreases. There are two types of xed cost: discretionary and committed. Discretionary fixed costs: fixed costs that can be changed or avoided relatively easily at management"s discretion. Committed fixed cost: fixed costs that cannot be easily changed.

Related Questions

1. Which one of the following refers to a cost that remains the same as the volume of activity decreases within the relevant range?

A. Average cost per unit.

B. Variable cost per unit.

C. Unit fixed cost.

D. Total variable cost.

2. The relevant range refers to the activity levels over which

A. Cost relationships hold constant.

B. Costs fluctuate.

C. Production varies.

D. Relevant costs are incurred.

3. When identifying fixed and variable costs, which one of the following is a typical assumption concerning cost behavior?

A. General and administrative costs are assumed to be variable costs.

B. Cost behavior is assumed to be realistic for all levels of activity from zero to maximum capacity.

C. Total costs are assumed to be linear when plotted on a graph.

D. The relevant time period is assumed to be 5 years.

4. A management accountant is about to prepare graphs of total variable cost and per-unit variable cost for use in a short-term planning model. Dollars will be depicted on the vertical axis; activity will be shown on the horizontal axis. How will these graphs appear under completion?

Total Variable Cost; Per-Unit Variable Cost

A. Straight line, sloping upward to the right; Straight line, parallel to the horizontal axis

B. Curvilinear, sloping upward to the right; A line that basically parallels the horizontal axis, first decreasing and then increasing

C. Straight line, sloping upward to the right; Straight line, sloping upward to the right

D. Straight line, parallel to the horizontal axis; Straight line, sloping upward to the right

5. A company has found that its total electricity cost has both a fixed component and a variable component within the relevant range. The variable component seems to vary directly with the number of units produced. Which one of the following statements concerning electricity cost is incorrect?

A. The total electricity cost will increase as production volume increases.

B. The total electricity cost per unit of production will increase as production volume increases.

C. The variable electricity cost per unit of production will remain constant as production volume increases.

D. The fixed electricity cost per unit of production will decline as production volume increases.

silversnake284

âThat old equipment for producing subassemblies is worn out,â said Bruce Truesdale, president of Truesdale Company. âWe need to make a decision quickly.â 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 Companyâs 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?

orangegerbil545

Delta Company produces a single product. The cost of producing and selling a single unit of this product at the companyâs normal activity level of 88,800 units per year is:


Direct materials	$	1.90
Direct labor	$	4.00
Variable manufacturing overhead	$	.60
Fixed manufacturing overhead	$	4.15
Variable selling and administrative expenses	$	1.70
Fixed selling and administrative expenses	$	3.00

The normal selling price is $26 per unit. The companyâs capacity is 124,800 units per year. An order has been received from a mail-order house for 3,000 units at a special price of $23.00 per unit. This order would not affect regular sales.

Required:

1.	If the order is accepted, by how much will annual profits be increased or decreased? (The order will not change the companyâs total fixed costs.)

Annual profits would

Assume the company has 500 units of this product left over from last year that are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units? (Round your answer to 2 decimal places.)

Relevant cost per unit

For many years Futura Company has purchased the starters that it installs in its standard line of farm tractors. Due to a reduction in output, the company has idle capacity that could be used to produce the starters. The chief engineer has recommended against this move, however, pointing out that the per unit cost to produce the 70,000 starters needed would be greater than the current $11.80 per unit purchase price:

	Per Unit		Total
Direct materials	$	5.00
Direct labor		3.50
Supervision		1.70	$	119,000
Depreciation		1.50	$	105,000
Variable manufacturing overhead		0.40
Rent		0.30	$	21,000

Total product cost	$	12.40

A supervisor would have to be hired to oversee production of the starters. However, the company has sufficient idle tools and machinery so that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total rent on the plant is $83,000 per period. Depreciation is due to obsolescence rather than wear and tear.

Required:

1.	Determine the total relevant cost per unit if starters are made inside the company. (Round your answer to 2 decimal places.)

Relevant cost per unit

2.	Determine the total relevant cost per unit if starters are purchased from an outside supplier. (Round your answer to 2 decimal places.)

Relevant cost per unit

3.	What is the increase or decrease in profits as a result of purchasing the starters from an outside supplier rather than making them inside the company? (Do not round intermediate calculations. Round your answer to the nearest dollar amount.)

Profit would

per period

rev: 08_12_2014_QC_52194, 11_03_2014_QC_58434, 11_15_2016_QC_CS-69994

ochrehare928

ACC 406 Chapter Notes - Chapter 3: Inkjet Printing, Cost Driver, Fixed Cost

Document Summary

Get access

Related Documents

ACC 406 Lecture Notes - Lecture 2: Inkjet Printing, Fixed Cost, Cost Driver

ACC 406 Lecture Notes - Lecture 3: Cost Driver, Fixed Cost, Variable Cost

ACC 406 Lecture Notes - Lecture 3: Cost Driver, European Cooperation In Science And Technology, Scatter Plot

Related Questions