7. ABC Company temporarily has unused production capacity. The idle plant facilities can be used tomanufacture a low-margin item. The low-margin item should be produced if it can be sold for more thanitsc. Variable costs plus any opportunity cost of the idle facilities.d. Indirect costs plus any opportunity cost of the idle facilities.a. Fixed costs.b. Variable costs.8. In a make or buy situation, which of the following qualitative factors is usually considered?a. Special technology.b. Skilled labor.c. Special materials requirements.d. Quality control.e. All of these.9. Which of the following qualitative factors favors the buy choice in a make or buy decision?a. Maintaining a long-run relationship with suppliers.b. Quality control is critical.c. Utilization of idle capacity.D. All of these.10. In deciding whether to manufacture a part or buy it from an outside vendor, a cost that is irrelevantto the short-run decision isa. Direct labor.b. Variable overheadc. Fixed overhead that will be avoided if the part is bought from an outside vendor.d. Fixed overhead that will continue even if the part is bought from the outside vendor.11. In considering a special order situation that will enable a company to make use of presently idlecapacity, which of the following costs would be irrelevant?a. Materials.b. Depreciation.c. Direct labor.d. Variable overhead.12. Which of the following cost allocation methods would be used to determine the lowest price thatcould be quoted for special order that would utilize idle capacity within a production area?a. Job order.b. Process.c. Variable.d. Standard.13. Costs which will require the expenditure of cash or the incurrence of a liability as a consequence ofa management decisiona. Direct costs.b. Avoidable costs.c. Out-of-pocket costs.d. Sunk costs.e. Imputed costs.14. An income statement is prepared as an internal report. Under which of the following methods wouldthe term contribution margin appear?Absorption costingDirect costingNoNoa.b.NoYesYesNoс.d.YesYes

The minimum selling price when there is any excess capacity should able to cover the relevant cost…

7. ABC Company temporarily has unused production capacity. The idle plant facilities can be used to manufacture a low-margin item. The low-margin item should be produced if it can be sold for more than its c. Variable costs plus any opportunity cost of the idle facilities. d. Indirect costs plus any opportunity cost of the idle facilities. a. Fixed costs. b. Variable costs.

7. ABC Company temporarily has unused production capacity. The idle plant facilities can be used to manufacture a low-margin item. The low-margin item should be produced if it can be sold for more than its c. Variable costs plus any opportunity cost of the idle facilities. d. Indirect costs plus any opportunity cost of the idle facilities. a. Fixed costs. b. Variable costs.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Manufacturing Costs

Manufacturing cost is the total cost of procuring or producing a product. In other words, the manufacturing cost is the cost that an individual or business owner undertakes for the manufacturing of goods.

Question

7. ABC Company temporarily has unused production capacity. The idle plant facilities can be used to
manufacture a low-margin item. The low-margin item should be produced if it can be sold for more than
its
c. Variable costs plus any opportunity cost of the idle facilities.
d. Indirect costs plus any opportunity cost of the idle facilities.
a. Fixed costs.
b. Variable costs.
8. In a make or buy situation, which of the following qualitative factors is usually considered?
a. Special technology.
b. Skilled labor.
c. Special materials requirements.
d. Quality control.
e. All of these.
9. Which of the following qualitative factors favors the buy choice in a make or buy decision?
a. Maintaining a long-run relationship with suppliers.
b. Quality control is critical.
c. Utilization of idle capacity.
D. All of these.
10. In deciding whether to manufacture a part or buy it from an outside vendor, a cost that is irrelevant
to the short-run decision is
a. Direct labor.
b. Variable overhead
c. Fixed overhead that will be avoided if the part is bought from an outside vendor.
d. Fixed overhead that will continue even if the part is bought from the outside vendor.
11. In considering a special order situation that will enable a company to make use of presently idle
capacity, which of the following costs would be irrelevant?
a. Materials.
b. Depreciation.
c. Direct labor.
d. Variable overhead.
12. Which of the following cost allocation methods would be used to determine the lowest price that
could be quoted for special order that would utilize idle capacity within a production area?
a. Job order.
b. Process.
c. Variable.
d. Standard.
13. Costs which will require the expenditure of cash or the incurrence of a liability as a consequence of
a management decision
a. Direct costs.
b. Avoidable costs.
c. Out-of-pocket costs.
d. Sunk costs.
e. Imputed costs.
14. An income statement is prepared as an internal report. Under which of the following methods would
the term contribution margin appear?
Absorption costing
Direct costing
No
No
a.
b.
No
Yes
Yes
No
с.
d.
Yes
Yes

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Break-Even Analysis The general formula for calculating break-even units is Break-even Units = Total Fixed Costs / (Unit Selling Price - Unit Variable Cost) In StratSim total fixed costs can be broken into discretionary marketing expenditures as well as fixed costs for plant and overhead. The selling price is the MSRP less the dealer discount, and the cost of materials and labor make up the variable cost. In this assignment you will allocate fixed costs across a portfolio of products and calculate the break-even units for each product. A firm's production capacity is 1.4 million units, with annual fixed costs of $2.2 billion for depreciation, plant maintenance, corporate marketing, and general overhead. Additional values for the three vehicles produced and sold by the firm are shown in the table below: Vehicle X Vehicle Y Vehicle Z MSRP $11,800 $19,000 $44,300 Dealer Discount 8% 13% 14% Variable Cost $8,300 $11,600 $27,900 Advertising & Promotion $38,000,000 $74,000,000 $99,000,000…
Break-Even Analysis The general formula for calculating break-even units is Break-even Units = Total Fixed Costs / (Unit Selling Price - Unit Variable Cost) In StratSim total fixed costs can be broken into discretionary marketing expenditures as well as fixed costs for plant and overhead. The selling price is the MSRP less the dealer discount, and the cost of materials and labor make up the variable cost. In this assignment you will allocate fixed costs across a portfolio of products and calculate the break-even units for each product. A firm's production capacity is 1.4 million units, with annual fixed costs of $2.2 billion for depreciation, plant maintenance, corporate marketing, and general overhead. Additional values for the three vehicles produced and sold by the firm are shown in the table below: Vehicle X Vehicle Y Vehicle Z MSRP $11,800 $19,000 $44,300 Dealer Discount 8% 13% 14% Variable Cost Advertising & Promotion $8,300 $11,600 $27,900 $38,000,000 $74,000,000 $99,000,000…
Which one of the following statement is not correct? O Both fixed and variable costs influence short-term decision-making. O Short-term decision-making is all about analysing those costs that will change as a result of taking a particular action. O Opportunity costs are only considered when resources are limited. O Break-even analysis is used to determine how many units of a product or a service a business has to sell to cover all its costs.
A fixed cost is a cost that does not vary in the short run with a specified activity. The defining characteristic of a fixed cost is that it depends on the amount of a resource that is acquired rather than the amount that is used. For this reason fixed costs are often called capacity-related costs. Write 300 to 400 words that explain the difference between fixed costs and variable costs. The example may be of a company you’ve worked with or another company that has these types of costs
The opportunity cost of making a component part in factory with excess capacity for which is no alternative use is: A. Zero B. Total production costs of the component C. Total variable cost of the component D. Fixed manufacturing costs of the component
1. Fill in the missing numbers in the table. Use the following questions to help fill in the missing numbers in the table: a. What is the total contribution margin? b. What is the total variable expense? c. How many units were sold? d. What is the per-unit variable expense? e. What is the per-unit contribution margin? 2. Answer the following questions about breakeven analysis: a. What is the breakeven point in units? b. What is the breakeven point in sales dollars? 3. Answer the following questions about target profit analysis and safety margin: a. How many units must the company sell in order to earn a profit of $48,000? b. What is the current margin of safety in units? c. What is the margin of safety in sales dollars? d. What is the margin of safety in percentage?
Which of the following is true when referring to fixed costs? I. Fixed costs remain constant in total throughout the relevant range. II. The trend in companies today is toward greater fixed costs relative to variable costs. III. As volume increases, unit fixed cost and total fixed cost will change. IV. Fixed costs increase in total throughout the relevant range. a. II only b. All but IV c. I and II d. All but III e. None of these
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