Brighton Components is operating at 80% capacity. A European automaker has offered topurchase 25,000 units of a specialized engine component for $150 per unit. The vice president ofsales believes this order will provide access to new markets, but the VP of finance is concernedabout its profitability.To determine variable and fixed costs, Brighton's accountant used the high-low method with thefollowing production and cost data:••Production of 200,000 units: Total costs = $35,600,000Production of 240,000 units: Total costs = $41,200,000Additionally, the order will require an additional shipping cost of $4 per unit, a setup cost of$180,000, and a special machine lease of $200,000.

Step 1: Definition of Relevant Cost AnalysisRelevant cost analysis helps determine whether to accept…

Answered: Brighton Components is operating at 80%…

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter10: Cost Analysis For Management Decision Making

Section: Chapter Questions

Problem 11P: Emerald Island Company is considering building a manufacturing plant in County Kerry. Predicting...

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Collyer Products Inc. has a Valve Division that manufactures and sells a standard valve as follows: Capacity in units Selling price to outside customers on the intermediate market Variable costs per unit Fixed costs per unit (based on capacity) 10,000 15 8 5 The company has a Pump Division that could use this valve in the manufacture of one of its pumps. The Pump Division is currently purchasing 10,000 valves per year from an overseas supplier at a cost of $14 per valve. 3. Assume again that the Valve Division is selling all that it can produce to outside customers on the intermediate market. Also assume that $2 in variable expenses can be avoided on transfers within the company, due to reduced selling costs. What is the acceptable range, if any, for the transfer price between the two divisions? Transfer price 4. Assume the Pump Division needs 20,000 special high-pressure valves per year. The Valve Division's variable costs to manufacture and ship the special valve would be $10 per…
We Deliver operates a fleet of delivery trucks in Halifax. Analysis shows that if a truck is driven 150,000 kilometres during a year, the average operating cost is 11.9 cents ($0.119) per kilometre. If a truck is driven only 94,000 kilometres during a year, the average operating cost increases to 13.9 cents ($0.139) per kilometre. Required: 1. Using the high-low method, estimate the variable and fixed cost elements of the annual cost of truck operation. (Do not round your intermediate calculations. Round the "Variable cost per kilometer" to 3 decimal places.) High level of activity Low level of activity Change Variable cost per kilometer Fixed cost per year = Kilometers Driven 2. Express the variable and fixed costs in the form Y= a + bX. (Do not round your intermediate calculations. Round the "Variable cost per kilometer" to 3 decimal places.) Total Annual Cost Total annual cost 3. If a truck were driven 127,000 kilometres during a year, what total cost would you expect to be…
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We Deliver operates a fleet of delivery trucks in Halifax. Analysis shows that if a truck is driven 159,000 kilometres during a year, the average operating cost is 12.0 cents ($0.120) per kilometre. If a truck is driven only 85,000 kilometres during a year, the average operating cost increases to 13.9 cents ($0.139) per kilometre. Required: 1. Using the high–low method, estimate the variable and fixed cost elements of the annual cost of truck operation. (Do not round your intermediate calculations. Round the "Variable cost per kilometer" to 3 decimal places.) 2. Express the variable and fixed costs in the form Y = a + bX. (Do not round your intermediate calculations. Round the "Variable cost per kilometer" to 3 decimal places.) 3. If a truck were driven 139,400 kilometres during a year, what total cost would you expect to be incurred? (Do not round intermediate calculations. Round the "Variable cost per kilometer" to 3 decimal places.)
Trey's Trucks uses a standard part in the manufacture of several of its trucks. The cost of producing 60,000 parts is $160,000, which includes fixed costs of $90,000 and variable costs of $70,000. The company can buy the part from an outside supplier for $3.30 per unit and avoid 30% of the fixed costs. If the company makes the part, how much will its operating income be? O A. $135,000 greater than if the company bought the part O B. $101,000 greater than if the company bought the part O C. $101,000 less than if the company bought the part O D. $135,000 less than if the company bought the part
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[The following information applies to the questions displayed below.] Charlevoix Cases makes mobile phone cases. The company has collected the following price and cost characteristics: Sales price Variable costs Fixed costs $ 12.00 per case 5.50 per case 391,950 per year Assume that the company plans to sell 75,300 units annually. Consider requirements (b), (c), and (d) independently of each other. Required: a. What will be the operating profit? b. What is the impact on operating profit if the sales price decreases by 20 percent? Increases by 10 percent? Note: Do not round intermediate calculations. c. What is the impact on operating profit if variable costs per unit decrease by 20 percent? Increase by 10 percent? Note: Do not round intermediate calculations. d. Suppose that fixed costs for the year are 20 percent lower than projected and variable costs per unit are 20 percent higher tha projected. What impact will these cost changes have on operating profit for the year? Will profit…
Value Electronics uses a standard part in the manufacture of different types of radios. The total cost of producing 32,000 parts is $90,000, which includes fixed costs of $30,000 and variable costs of $60,000. The company can buy this part from an external supplier for $5 per unit and avoid 10% of the fixed costs. If Value Electronics decides to outsource the production of the part, how will it impact its operating income? A. Operating income increases by $97,000. B. Operating income decreases by $100,000. C. Operating income decreases by $97,000. D. Operating income increases by $100,000.
Talladega Tire and Rubber Company has capacity to produce 500,000 tires. Talladega presently produces and sells 400,000 tires for the North American market at a price of $200 per tire. Talladega is evaluating a special order from a European automobile company, Autobahn Motors. Autobahn is offering to buy 100,000 tires for $150 per tire. Talladega's accounting system indicates that the total cost per tire is as follows: Line Item Description Amount Direct materials $75 Direct labor 20 Factory overhead (70% variable) 30 Selling and administrative expenses (60% variable) 18 Total $143 Talladega pays a selling commission equal to 3% of the selling price on North American orders, which is included in the variable portion of the selling and administrative expenses. However, this special order would not have a sales commission. If the order was accepted, the tires would be shipped overseas for an additional shipping cost of $3 per tire. In addition, Autobahn has made the…
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