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Exam 10: Relevant Costing for Managerial Decisions

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Question 81

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Markson Company had the following results of operations for the past year: A foreign company offers to buy 2,000 units at $14 per unit. In addition to variable manufacturing and administrative costs, selling these units would increase fixed overhead by $1,600 for the purchase of special tools. Markson's annual productive capacity is 12,000 units. If Markson accepts this additional business, its profits will:

A) Increase by $3,500.
B) Decrease by $5,650.
C) Decrease by $1,600.
D) Increase by $1,900.
E) Decrease by $5,100.

F) B) and D)
G) B) and E)

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Question 82

Multiple Choice

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Factor Co. can produce a unit of product for the following costs: An outside supplier offers to provide Factor with all the units it needs at $46 per unit. If Factor buys from the supplier, the company will still incur 60% of its overhead. Factor should choose to:

A) Buy since the relevant cost to make it is $56.
B) Make since the relevant cost to make it is $48.
C) Buy since the relevant cost to make it is $48.
D) Make since the relevant cost to make it is $32.
E) Buy since the relevant cost to make it is $32.

F) D) and E)
G) C) and E)

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Question 83

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Listmann Corp. processes four different products that can either be sold as is or processed further. Listed below are sales and additional cost data: Which product(s) should not be processed further?

A company produces three different products that all require processing on the same machines. The company has only 27,000 machine hours available in each year. Production information for each product is: Required: (1) Determine the preferred sales mix if there are no market constraints on any of the products. (2) Determine the preferred sales mix if the demand is limited to 5,000 units for each product. (3) Determine the preferred sales mix if the demand is limited to 3,000 units for each product.

Gordon Corporation produced 10,000 digital watches in the current year. Variable costs are $8 per watch. Overhead assigned is $2.25 per watch. A supplier offers the watches for $9.50 each. Gordon's production manager reports the incremental overhead is $1.25 per watch. Gordon should: