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Exam 8: Relevant Costs for Short-Term Decisions

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Question 61

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Westfall Watches has two product lines: Luxury watches and Sporty watches.Income statement data for the most recent year follow: If $20,000 of fixed costs will be eliminated by discontinuing the Sporty line,how will operating income be affected?

A) Decrease $30,000
B) Increase $10,000
C) Increase $69,000
D) Increase $128,000

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Question 62

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Sky High Seats manufactures seats for airplanes.The company has the capacity to produce 100,000 seats per year,but currently produces and sells 75,000 seats per year.The following information relates to the current production of the product: If a special sales order is accepted for 7,000 seats at a price of $350 per unit,and fixed costs remain unchanged,how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order. )

A) Increase by $560,000
B) Decrease by $560,000
C) Increase by $2,450,000
D) Increase by $8,000,000

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Question 63

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For some merchandisers,the primary constraint may be cubic feet of display space.

Westfall Watches has two product lines: Luxury watches and Sporty watches.Income statement data for the most recent year follow: Assuming the Sporty line is discontinued,total fixed costs remain unchanged,and the space formerly used to produce the Sporty line is used to increase the production of Luxury watches by 250%,how will operating income be affected?

Mountaintop golf course is planning for the coming season.Investors would like to earn a 12% return on the company's $45 million of assets.The company primarily incurs fixed costs to groom the greens and fairways.Fixed costs are projected to be $20,000,000 for the golfing season.About 400,000 golfers are expected each year.Variable costs are about $15 per golfer.Mountaintop golf course is a price-taker and won't be able to charge more than its competitors who charge $75 per round of golf.What profit will it earn as a percent of assets?

The income statement for Lovely Locks is divided by its two product lines,Curling Irons and Straighteners,as follows: If Lovely Locks can eliminate fixed costs of $32,000 by discontinuing the Straightener line,then discontinuing it should result in which of the following?

Managers need to consider variable costs,fixed costs,inventoriable product costs and period costs when setting prices.

Companies often try to gain more control over pricing by attempting to differentiate their products.

Managers should consider which of the following when deciding whether to outsource a product or service?

In pricing a product,managers should consider which of the following?

Cruise Company produces a part that is used in the manufacture of one of its products.The unit manufacturing costs of this part,assuming a production level of 6,000 units,are as follows: Assume Cruise Company can purchase 6,000 units of the part from Suri Company for $14.00 each,and the facilities currently used to make the part could be used to manufacture 6,000 units of another product that would have an $8 per unit contribution margin.If no additional fixed costs would be incurred,what should Cruise Company do?

All of the following are relevant to the decision to replace equipment except the

Benace Parts and Supply makes a variety of car parts.The company produces 6,000 A90 parts each year.Each A90 sells for $7 and has a contribution margin of $2.Currently,$16,000 of fixed manufacturing overhead is allocated to the A90 product line.If Benace Parts and Supply discontinues the A90 product line,$7,000 of fixed manufacturing overhead costs would be avoided.What would be the impact on total operating income if the A90 product line were to be discontinued?

When setting prices,managers need to consider all costs.

Contribution margin income statement data for the most recent year follow: Assuming the Dog food line is discontinued,total fixed costs remain unchanged,and the space formerly used to produce the Dog food line is used to double the production of Cat food,how will operating income be affected?

"Contribution margin per unit" is best described by which of the following?

Outsourcing decisions are sometimes referred to as

A "constraint" is best described by which of the following?

Boots Plus has two product lines: Hiking boots and Fashion boots.Income statement data for the most recent year follow: If $25,000 of fixed costs will be eliminated by discontinuing the Fashion line,how will operating income be affected?

An "opportunity cost" is best described by which of the following?