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Exam 6: Relevant Information for Special Decisions

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Question 31

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What is a segment elimination decision? Under what conditions should a company decide to eliminate a segment?

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A segment elimination ...

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Question 32

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All of the following are examples of product-level costs except:

A) product inspection costs.
B) product advertising costs.
C) engineering design costs.
D) patent costs.

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

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Question 33

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Direct labor is an example of a product-level cost.

Select the term from the list provided that best matches each of the following descriptions. Put the number of the term in the column for Your Answer.

Farris Company reported the following information for its two products: Due to labor constraints, demand for each of the products is greater than its supply. Product X requires 1 hour of labor to produce and product Y requires 3 hours of labor to produce. Which of the following statements is true? $\begin{array}{|l|r|r|}\hline &{\text { Product X }} &{\text { Product Y }} \\\hline \text { Selling price per unit } & \$ 35 & \$ 25 \\\hline \text { Variable cost per unit } & 20 & 15 \\\hline\end{array}$

Segment reports are used to evaluate the true profitability of a company's business segments.

Clean, Inc. cleans and waxes floors for commercial customers. The company is presently operating at less than capacity with equipment and employees idle at times. The company recently received an order from a potential customer outside the company's normal geographic service region for a price of $4,500. The size of the proposed job is 11,000 square feet. The company's normal service costs are as follows: If the company accepts the special offer: $\begin{array}{|l|l|}\hline \text { Unit-level materials } & \$ 0.18 \text { per square foot } \\\hline \text { Unt-level labor } & \$ 0.25 \text { per square foot } \\\hline \text { Unit-level variable overhead } & \$ 0.08 \text { per square foot } \\\hline \text { Facility-level overhead } & \text { Allocated at } \$ 0.10 \text { per square foot }\\\hline\end{array}$

Which of the following items is qualitative?

Relevant costs are frequently called unavoidable costs.

A company that provides services (not goods) to its customers may incur costs that are appropriately classified as product-level costs.

Easton Company makes and sells scooters. Easton incurred the following costs in its most recent fiscal year: Easton can currently purchase the scooters it makes from another company. If the company purchases the scooters, Easton would still continue to use its own logo, sales staff, and advertising programs. Which of the following costs would be classified as a unit-level cost? $\begin{array} { | l | l | } \hline { \text { Cost Items Appearing } } & \text { on the Income Statement } \\\hline \text { Materials cost (\$10 per unit) } & \text { Depreciation on manufacturing equipment } \\\hline \text { Company president's salary } & \text { Salaries of administrative personnel } \\\hline \text { Labor cost (\$4 per unit) } & \text { Research and development costs } \\\hline \text { Advertising costs ( } 150,000 \text { per year) } & \text { Real estate taxes on factory } \\\hline \text { Shipping and handling (\$0.15 per unit) } & \text { Inspection costs } \\\hline\end{array}$

The Mansfield Company manufactures and sells two lines of fishing rods. During the most recent accounting period, the Pro line and the Novice line sold 15,000 and 2,000 units, respectively. The company's most recent financial statements are shown below: Based on this information, the company should: The word "Costs" should not be capitalized mid-way down. Also, change "admin." to: Administrative The cell should read: Unit-level selling and administrative costs

Select the correct statement regarding relevant costs and revenues.

A potential danger from outsourcing is that a company may become too dependent on the supplier.

Special order decisions involve:

Qualitative information is only relevant for decision making if it can be quantified.

Time Unlimited makes grandfather clock kits that it sells to hobbyists who then assemble and finish the clocks. The company has the capacity to make 5,000 of the kits, and its current volume is 3,000 kits. The costs of a clock kit are: $300 for unit-level materials, $200 for unit-level labor, and $150 for an allocation of facility-level overhead. The normal selling price is $950. The Clock Builder has received a special order for 600 clock kits at a price of $600 each.Required: Should The Clock Builder accept the special order? Support your answer with appropriate computations.

Breezy Company is disposing of equipment that was originally purchased for $600,000 and has $240,000 of accumulated depreciation to date. The same equipment would cost $800,000 to replace. What is the total amount of sunk cost in this decision?

The Mighty Music Company produces and sells a desktop speaker for $100. The company has the capacity to produce 50,000 speakers each period. At capacity, the costs assigned to each unit are as follows: The company has received a special order for 500 speakers. If this order is accepted, the company will have to spend $15,000 on additional costs. Assuming that no sales to regular customers will be lost if the order is accepted, at what selling price will the company be indifferent between accepting and rejecting the special order? $\begin{array} { | l | l | } \hline \text { Unit level costs } & \$ 45 \\\hline \text { Product level costs } & \$ 15 \\\hline \text { Facility level costs } & \$ 5 \\\hline\end{array}$

Which of the following costs is an example of a product-level cost?