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Exam 7: Relevant Costs and Product Planning Decisions

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Question 31

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Henderson Manufacturing Inc. Henderson Manufacturing Inc. manufactures electric scooters. The company currently makes all of the electronic components for the scooter itself. When 10,000 motors are manufactured each year, the motor costs per unit are as follows: Plymouth Inc. has offered to sell Henderson 10,000 motors for $14 per unit. If Henderson accepts the offer, 50% of the fixed overhead currently allocated to the motors could be avoided. Refer to the Henderson Manufacturing Inc. information above. If Henderson accepts the offer to purchase 6,000 motors from Plymouth, the net income will:

A) decrease by $9,000.
B) increase by $10,000.
C) decrease by $10,000.
D) increase by $9,000.

E) None of the above
F) A) and B)

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Question 32

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Averette & Averette Averette & Averette, a local dental practice, currently makes its own dentures for customers. The dental practice has one part-time employee who comes in weekly to make dentures. The employee is paid $150 per denture set. The direct materials and variable overhead cost per set of dentures is $75 and $25, respectively. In addition, the practice allocates $10,000 of fixed overhead to the denture-making department. The practice makes 1,000 sets of dentures per year. An outside company who specializes in the making of dentures has offered to make each set of dentures for Averette & Averette for $255 per set. Refer to the Averette & Averette information above. If Averette & Averette outsources the making of dentures, the net income will:

A) decrease by $15,000.
B) increase by $5,000.
C) increase by $15,000.
D) decrease by $5,000.

E) A) and C)
F) B) and C)

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Question 33

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In deciding whether to sell a product or to process it further, which of the following costs are relevant to the decision?

Mountaineer Products Mountaineer Products manufactures two types of tents: single-wall and double-wall. Selected data related to each type of tent is as follows: Total fixed overhead is $150,000. Most of the manufacturing process is done on specialized machines. For the upcoming year, there is a maximum of 9,000 machine hours available. Management believes there is sufficient demand for 3,000 single-wall and 4,000 double-wall tents each year. Refer to the Mountaineer Products information above. If the company produces in order to maximize its profits, what would be the contribution margin for the upcoming year?

Mountaineer Products Mountaineer Products manufactures two types of tents: single-wall and double-wall. Selected data related to each type of tent is as follows: Total fixed overhead is $150,000. Most of the manufacturing process is done on specialized machines. For the upcoming year, there is a maximum of 9,000 machine hours available. Management believes there is sufficient demand for 3,000 single-wall and 4,000 double-wall tents each year. Refer to the Mountaineer Products information above. In order to maximize profits, how many of each type of tent should be produced?

Carolina Potato Inc. currently sells cut sweet potatoes for $.85 per can. The cost of producing the sweet potatoes is $.18 per can. Carolina Potato is considering starting a line of mashed sweet potatoes. The additional processing costs would be $.06 per can and each can would sell for $.95. Which of the following pieces of information is not relevant to the decision to sell or process further?

Speed Quest Inc. manufactures speed boats. Currently, the company manufactures its own engine for the boats at the following unit costs: Another manufacturer has offered to supply Speed Quest with the engine at a cost of $85 each. Speed Quest currently makes 1,000 boats annually. If Speed Quest accepts the offer, what will be the short-term impact on net income?

JNR Products produces and sells plastic soda cups with specialized logos on the front. They sell the cups in batches of 500 for $125 per batch. The company has the capacity to produce 100 batches per month but averages much less. When 75 batches are sold a month, each batch has $40 worth of variable costs and $5 worth of fixed overhead costs allocated to it. The company has been approached by a local fireman's association who wishes to purchase three batches of cups for $50 per batch. If the special order were accepted, net income would:

What is a special order? What factors does a company consider when examining a special order?

Laurel Inc. has three product lines: A, B, and C. Management is considering dropping product line C. If it is discontinued, one-half of its fixed costs can be avoided. The discontinuation of product line C would:

Which of the following would not be a factor in the consideration of whether or not a special order is accepted or not?

Which of the following costs is least likely to be relevant in deciding whether to accept a special order?

Morris Inc. manufactures two products: Widgets and Gizmos. Widgets have a contribution margin per unit of $30 and require 2 hours of direct labor while Gizmos have a contribution margin per unit of $39 and require 3 hours of direct labor.

Describe the theory of constraints. In doing so, define bottlenecks and throughput.

You overhear the manager of a sign shop say, "I'd never accept a special order! How could you ever make money selling products below full cost?" Do you agree? Why or why not?

Which of the following is not a consideration associated with outsourcing?

A local vendor at the county fair sells snow cones for $.50 each. When 250 snow cones are sold, each snow cone is estimated to have $.10 in variable costs and $.15 in fixed costs. A local school group plans on attending the fair next week and wishes to purchase 50 snow cones for $.25 each. The vendor can sell as many as 400 snow cones per day. If the special order were accepted, net income would:

If a company is faced with a limited resource, which of the following is not a feasible option for alleviating the constraint?

Decker Products Decker Products manufactures standard and deluxe wooden swing sets. Selected data related to each product is as follows: Most of the manufacturing process for the sets is done on machines. There is a maximum of 10,000 machine hours available each year. Refer to the Decker Products information above. If demand were strong for both sets and the company could sell an unlimited number of either style, what is the maximum total contribution margin the company could have?

Henderson Manufacturing Inc. Henderson Manufacturing Inc. manufactures electric scooters. The company currently makes all of the electronic components for the scooter itself. When 10,000 motors are manufactured each year, the motor costs per unit are as follows: Plymouth Inc. has offered to sell Henderson 10,000 motors for $14 per unit. If Henderson accepts the offer, 50% of the fixed overhead currently allocated to the motors could be avoided. Refer to the Henderson Manufacturing Inc. information above. What are the relevant costs per unit of Henderson manufacturing the motors themselves?