Only future costs that differ between alternatives are relevant in decision making
Accounting
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Only future costs that differ between alternatives are relevant in decision making.
Nesmith Corporation is considering two alternatives: A and B. Costs associated with the alternatives are listed below:
Alternative A Alternative B
Materials costs $33,000 $53,000
Processing costs $38,000 $57,000
Equipment rental $11,000 $11,000
Occupancy costs $18,000 $29,000
Are the materials costs and processing costs relevant in the choice between alternatives A and B? (Ignore the equipment rental and occupancy costs in this question.)
Tawstir Corporation has 800 obsolete personal computers that are carried in inventory at a total cost of $1,100,000. If these computers are upgraded at a total cost of $40,000, they can be sold for a total of $750,000. As an alternative, the computers can be sold in their present condition for $690,000.
What is the net advantage or disadvantage to the company from upgrading the computers rather than selling them in their present condition?
Tawstir Corporation has 800 obsolete personal computers that are carried in inventory at a total cost of $1,100,000. If these computers are upgraded at a total cost of $40,000, they can be sold for a total of $750,000. As an alternative, the computers can be sold in their present condition for $690,000.
The sunk cost in this situation is:
The management of Kabanuck Corporation is considering dropping product V41B. Data from the company's accounting system appear below:
All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $215,000 of the fixed manufacturing expenses and $126,000 of the fixed selling and administrative expenses are avoidable if product V41B is discontinued.
What would be the effect on the company's overall net operating income if product V41B were dropped?
The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to produce 130,000 wheels annually are:
Direct materials $26,000
Direct labor $39,000
Variable manufacturing overhead $19,500
Fixed manufacturing overhead $61,000
An outside supplier has offered to sell Talbot similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $16,000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $42,500 per year. Direct labor is a variable cost.
If Talbot chooses to buy the wheel from the outside supplier, then annual net operating income would:
Eley Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 40,000 units per month is as follows:
The normal selling price of the product is $104.4 per unit.
An order has been received from an overseas customer for 1,650 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.8 less per unit on this order than on normal sales.
Direct labor is a variable cost in this company.
What is the contribution margin per unit on normal sales?
Hoang Corporation makes three products that use compound W, the current constrained resource. Data concerning those products appear below:
KI LH RP
Selling price per unit $248.51 $508.40 $236.80
Variable cost per unit $207.47 $428.1 $172.9
Centiliters of compound W 3.8 7.3 4.5
Rank the products in order of their current profitability from most profitable to least profitable. In other words, rank the products in the order in which they should be emphasized.
The constraint at Bonavita Corporation is time on a particular machine. The company makes three products that use this machine. Data concerning those products appear below:
UN ZG PW
Selling price per unit $ 282.30 $ 483.74 $ 524.62
Variable cost per unit $ 192.42 $ 346.68 $ 385.18
Minutes on the constraint 4.20 7.70 8.40
Rank the products in order of their current profitability from most profitable to least profitable. In other words, rank the products in the order in which they should be emphasized.
Gary Corporation produces products X, Y, and Z from a single raw material input. Budgeted data for the next month is as follows:
Product X Product Y Product Z
Units produced 1,400 1,900 2,900
Per unit sales value at split-off $ 12 $ 17 $ 14
Added processing costs per unit $ 3 $ 5 $ 5
Per unit sales value if processed further $ 18 $ 18 $ 23
If the cost of raw material input is $67,000, which of the products should be processed beyond the split-off point?
Product X Product Y Product Z
A) yes yes no
B) yes no yes
C) no yes no
D) no yes yes
