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Exam 30: Cost-Revenue Analysis for Decision Making

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Question 31

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Direct costing is extremely useful in setting prices of products in special-order situations.

A) True
B) False

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Question 32

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Using the absorption method, the cost of goods sold is:

A) $550,000
B) $540,000
C) $480,000
D) $450,000

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

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Question 33

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Data for a firm's first year of operation is given below. The firm uses direct costing. $\begin{array} { l r } \text { Units produced (no work in process) } & 6,000 \\\text { Units sold } & 5,000 \\\text { Units in ending inventory of finished goods } & 1,000 \\\text { Sales price for each unit } & \$ 75 \\\text { Variable manufacturing costs for each unit manufactured } & \$ 30 \\\text { Variable selling and admin. expenses for each unit sold } & \$ 16 \\\text { Fixed manufacturing costs for the year } & \$ 90,000 \\\text { Fixed selling and admin. expenses for the year } & \$ 65,000\end{array}$ 1. What is the ending inventory of finished goods? 2. What is the cost of goods sold? 3. What is the manufacturing margin for the year? 4. What is the net income (loss) for the year?

Using the absorption method, the value of ending inventory of finished goods is:

If a segment of a business is expected to produce an annual contribution margin of $30,000 but is also expected to incur controllable fixed costs of about $40,000 annually, that segment should probably be discontinued.

Costs that are not directly traceable to any specific department are called ____________________ costs.

If a decision must be made to close a warehouse, non-refundable prepaid rent on the warehouse is

The Alvarado Equipment Corporation is currently manufacturing a part that goes into its main product. Each year 2,500 of these parts are used. Cost data for the past year that relates to the 2,500 parts is given below. Fixed costs are allocated on the basis of direct labor hours. An outside company has offered to supply the part for $45 a unit, plus a shipping charge of $2 a unit. The plant capacity now used by Alvarado to manufacture the part would not be used within the foreseeable future if the part is purchased outside. $\begin{array} { l r } \text { Direct Materials } & \$ 60,000 \\\text { Direct Labor } & 65,000 \\\text { Variable Overhead Costs } & 2,500 \\\text { Fixed Overhead Costs } & 5,000\end{array}$ Prepare an analysis comparing the unit cost of manufacturing the part with the unit cost of purchasing it. Based on the analysis, indicate the decision that should be made.

Contribution margin is calculated by

Using the absorption method, the gross profit on sales is:

The Lourdes Corporation manufactures fans. A newly-formed construction company in the area desires to buy up to 300 of their Model CSB3192 this year. Lourdes quoted them a price of $67 which covers all costs plus markon. The construction company has indicated that they will buy all the fans they need in the future from Lourdes Corporation if Lourdes will sell the fans for $60 each. Lourdes Corporation has the capacity to make the 300 fans above their usual production needs. Currently, Lourdes ships all of their production to companies in other parts of the country, but do not usually sell any locally. If the $60 offer covers all costs and allows a small markon, what other things should Lourdes consider before coming to a final decision?

When the balance in ending finished goods inventory increases, net income under absorption costing

When direct costing is used, cost of goods sold reflects

If a decision must be made about whether to replace a machine, the ____________________ value of the existing machine is irrelevant.

Using direct costing, the marginal income on sales is:

Using the given information, determine the income under both the absorption and the direct (variable) costing methods for CRL Company this year. Explain the difference, if any. $\begin{array}{llcc} \text { Beginning Inventory units } & -0- \\ \text { Units produced } &12,400\\ \text { Ending Inventory } &1,400\\ \text {Sales price per unit } &\$50.00\\ \text { Variable manufacturing costs per unit } &22.00\\ \text { Variable selling \& administrative costs per unit} &5.00\\ \text { Fixed manufacturing costs } &\$58,900\\ \text { Fixed selling and administrative costs } &\$75,020\\\end{array}$

In deciding whether to manufacture or to purchase a product, ____________________ costs are generally ignored.

Fixed manufacturing costs are written off as current expenses of the period in which they occurred when using

It is appropriate to consider nonfinancial factors in the decision-making process.

Segment managers can never control fixed costs.