Neither alternative is desirable, as both produce a loss for the firm. Value gained if goods sold the goods “as is” $45,000 Value gained if goods are cleaned and shipped and then sold = $80,000 – $23,000 – $57,000 As the value gained if the goods are cleaned is more, so cleaning and shipping should be done. Cost associates is given as $23,000 20, In early July, Mike Gottfried purchased a $70 ticket to the December 15 game of the Chicago Titans. (The Titans belong to the Midwest Football League and play their games outdoors on the shore of Lake Michigan. Parking for the game was expected to cost approximately $22, and Gottfried would probably spend another SIS for a souvenir program and food. It is now December 14_ The Titans were having a miserable season and the temperature was expected to peak at 5 degrees on game day. Mike therefore decided to skip the game and took his wife to the movies, with tickets and dinner costing $50. The sunk cost associated with this decision situation is: A. ASS_ B. $50. D. $107. E. Some Other amount. Sunk cost is the amount of money already invested. But the utility from it is not experienced or realized.
As Mike has only invested 570 Which he did not recover as he did not go to the games. He also invested $50 in movies, but then this amount was realized when he saw the movie. So sunk cost is only the cost of tickets purchased. So, sunk cost = $70 21, In early July, Jim Lopez purchased a $70 ticket to the December 15 game of the Chicago Titans. (The Titans belong to the Midwest Football League and play their games outdoors on the shore of Lake Michigan,) parking for the game was expected to cost approximately $22, and Lopez would probably spend another 515 for a souvenir program and food.
It is now December 14_ The Titans were having a miserable season and the temperature was expected to peak at 5 degrees on game day. Jim is thinking about skipping the game and taking his wife o the movies and dinner, at a cost of $50. The amount of sunk cost that should influence Jims decision to spend some time With his Wife is: A. $0. B. $20. C. So_ D. $70. If there is positive sunk cost, it means that Jim will lose some value of money. So, he will favor towards the games. Fifth sunk cost is 0, Jim will be indifferent towards the games and movie.
So, the value is O, to influence Jims decision to spend time with his wife. 25. Susan is contemplating a job offer with an advertising agency where she will make ASS,COO in her first year of employment. Alternatively, Susan can begin to org in her father’s business where she will earn an annual salary of $38,000. If Susan decides to work with her father, the opportunity cost would be: A. SC, B. $38,000. C ASS,coo_ D. $92,000. E. Irrelevant in deciding Which job Offer to accept. Opportunity cost is the value Of money we may lose When we indulge in some other activity.
So, here if Susan works for her father, she will lose the opportunity Of working for the advertising agency. Opportunity cost = $54000 29, Two months ago, Victory Corporation purchased 4,500 pounds of Hydro, paying $15,300. The demand for this product has been very strong since the acquisition, with the market price jumping to per pound, (Victory can buy or sell Hydro at this price. ) The company recently received a special-order inquiry, one that would require the use of 4,200 pounds of Hydro Which of the following is (are) relevant in deciding whether to accept the special order?
A. The 300-pound remaining inventory of Hydro_ B. The $4. 05 market price. C The 53 40 purchase price. D. 4,500 pounds of Hydro. E. Two or more Of the above factors are relevant. As Victory is undecided among two options, Whether to sell Hydro at $4. 05 per pound or to accept the special order. The factor relevant is the price of Hydro. If the price gives more profit than accepting the Offer, Victory Will sell hydro instead of accepting the order. 31. Mueller has been approached about providing a new service to its clients.
The company will bill clients $140 per hour: the related hourly variable and fixed operating costs will be ASS and SIB, respectively, If all employees are currently working at full capacity on other client matters, the per-hour opportunity cost to being unable to provide this new service is: A. SO. B. $47. D. $93. E _ S 140. Per hour opportunity cost of not being able to provide this service = 5140 -575 $65 The fixed operating cost is not subtracted because that amount is already invested and thus Will be counted towards sunk cost. Note: Axed component Of cost is always invested at the Start Of project. o, it is same whether you provide service or not. Variable cost occur if you provide service. 32. Snyder, Inc. , Which has excess capacity, received a special order for 4,000 units at a price of ASS per unit. Currently, production and sales are anticipated to be 10,000 units without considering the special order. Budget information for the current year follows. Cost of goods sold includes $30,000 affixed manufacturing cost, If the special order is accepted, the company’s income will: A. Increase by $2,000. G. Decrease by $2,000. C. Increase by $14,000. D. Decrease by $14,000. E. Change by some other molten.
Variable cost Cost of Goods – Fixed cost $145,000 – 530,000 IS 15,000 Variable cost per unit = Variable cost/ sales = $1 15,000/ 10,000 = $11. 5 As fixed cost is already incurred, To calculate increase in revenue by new order, only variable cost is considered. Revenue per new item = $15-$11. 5=$3. 5 So, – Revenue per new item of units of new order = Increase in revenue – 53. 94000 $14,000 33. Surround Sound, Inc. Reported the following results from the sale of 24,000 nits of IT-54: Rhythm Company has offered to purchase 3,000 IT-545 at $16 each, Sound has available capacity, and the president is in favor of accepting the order.
She feels it would be profitable because no variable selling costs will be incurred. The plant manager is opposed because the “full cost” of production is $17. Which of the following correctly notes the change in income if the special order is accepted? A. $3,000 decrease. B. SO,COO increase. C. $12,000 decrease. D. $12,000 increase. E. None of these. Variable cost per item for new order = 288,000/24000 = $12 Revenue per new item = $16-$12 = $4 So, increase in revenue = $4*3000 = $12,000 34 Computations, a manufacturer of computer peripherals, has excess capacity.
The company’s Utah plant has the following per-unit cost structure for item no. The traceable fixed administrative cost was incurred at the Lath plant; in contrast, the allocated administrative cost represents a “fair share” of Computations’ corporate overhead. Utah has been presented With a special order of 5,000 units of item no. 89 on which no selling cost will be incurred. The proper relevant cost in deciding whether to accept this special order would be: A. ASS. 8. $59. C. Sal. D. $80. E. Some other amount. In deciding whether to accept the offer, only variable cost is amounted.
As allocated administrative is part of corporate overhead, it is also fixed. Selling cost is not incurred in new order. So, cost to be considered is the Variable manufacturing cost , which is $40 35. Gorges Corporation manufactures parts that are used in the production of washers and dryers. The following costs are associated faith part no. 65: The company received a special-order inquiry from an appliance manufacturer in Spain for 15,000 units of part no. 65. Only $3 of fixed manufacturing will be uncured on the order, and the variable selling costs per unit Will amount to only $5.
Since Gorges has excess capacity, the minimum price that Gorges should charge the Spanish manufacturer is: A. 596. B. 99. C. $105. D. BIBB. Direct material and Direct labor is a type variable cost in manufacturing industry. So, total variable cost – $50 + $19 + $22 * $3 + $5 – $99 Here, fixed manufacturing of $3 is considered, because it is only for that order and is dependent on number of units of goods manufactured, 37, Torero Pines is studying whether to outsource its Human Resources (H/ R) activities.
Salaried professionals who earn $390,000 would be terminated; in contrast, administrative assistants who earn $120,000 valued be transferred elsewhere in the organization. Miscellaneous departmental overhead (e. G. , supplies, copy charges, overnight delivery) is expected to decrease by 530,000, and ASS,OHO of corporate overhead, previously allocated to Human Resources, would be picked up by Other departments. If Torero Pines can secure needed HIRE services locally for $410,000, how much would the company benefit by outsourcing? A. 510,000. B. 95,000. C. $130,000. D. $155,000. E.
Nothing, as it would be cheaper to keep the department open. Benefit to the company $390,000 * $30,000 – $410,000 – $20,000 The values of $120,000 and ASS,OHO is ignored because, these are allocated elsewhere in the organization and not really saved. 38. Song, a division of Carolina Enterprises, currently makes 100,000 units of a product that has created a number of manufacturing problems. Song’s costs follow. If Song were to discontinue production, fixed manufacturing costs would be reduced by 70%. The relevant cost of deciding whether the division should purchase the product from an outside supplier is: A. $540,000. B. 594,000. C. SASS,oho. D. $720,000. E. 926,000. Cost saving by purchasing = 40000 40. 7*180000 = SASS,oho 39, Maddox, a division of Stanley Enterprises, currently performs computer services for various departments of the firm. One to the services has created a number of operating problems, and management is exploring whether to outsource the service to a consultant. Traceable variable and fixed operating costs total 580,000 and 525,000, respectively, in addition to $18,000 of corporate administrative overhead allocated from Stanley. If Maddox were to use the outside consultant, fixed operating costs would be reduced by 70%.
The irrelevant costs in Maddox outsourcing decision total: A. $17,500. B. ASS,COO_ c. $25,000. D. $25,500. Irrelevant cost = administrative cost + fixed cost 525,500 = 18000 +0. 3*25000 = 44. The Shoe Department at the El Paso Department Store is being considered for closure. The following information relates to shoe activity: It 70% of the fixed operating costs are avoidable, should the Shoe Department be closed? A, Yes, El Paso would he better off by $23,000. B. Yes, El Paso would be better off by $50,000. C. No, El Paso would be worse off by ASS,COO. D. No, El Paso would be worse off by $40,000.
After avoiding of fixed cost Total cost = 280,000 30, COO $373,000 sales revenue = $350,000 o, if they sell, they are better Off by $373,000 – $350,000 -? – 523,000 45. Summers Corporation is composed of five divisions. Each division is allocated a share of Summer’s overhead to make divisional managers aware of the cost of running the corporate headquarters, The following information relates to the Metro Division: Fifth Metro Division is closed, 100% of the traceable fixed operating costs can be eliminated, What will be the impact on Summer’s overall profitability if the Metro Division is closed?
A. Decrease by $200,000. B. Decrease by SO,COO. C. Decrease by D. Decrease by Current profit – – – 300,000 report overhead will be utilized somewhere else. Impact on profitability = 200,000 + 300,000 = $500,000 200,000 As allocated 46. Ortega Interiors provides design services to residential and commercial clients. The residential services produce a contribution margin of $450,000 and have traceable fixed operating costs Of $480,000. Management is studying whether to drop the residential operation.