Question :
21) Clinton Company sells two items, product A and product : 1216917
21) Clinton Company sells two items, product A and product B. The company is considering dropping product B. It is expected that sales of product A will increase by 405 as a result. Dropping product B will allow the company to cancel its monthly equipment rental costing $100 per month. The other existing equipment will be used for additional production of product A. One employee earning $200 per month can be terminated if product B production is dropped. Clinton’s other fixed costs are allocated and will continue regardless of the decision made. A condensed, budgeted monthly income statement with both products follows:
Product AProduct BTotal
Sales$10,000$ 8,000$18,000
Direct materials2,5002,0004,500
Direct labor2,000 1,2003,200
Equipment rental3002,6002,900
Other allocated overhead 1,000 2,100 3,100
Operating income$4,200 $ 100$ 4,300
Required:
Prepare an incremental analysis to determine the financial effect of dropping product B.
22) Doggie Dinner, Inc., currently manufactures three different types of scientifically balanced dog food. The firm is considering eliminating one of the three products. What factors should be taken into account in making this decision?
Answer the following questions using the information below:
Melodee’s Preserves currently makes jams and jellies and a variety of decorative jars used for packaging. An outside supplier has offered to supply all of the needed decorative jars. For this make-or-buy decision, a cost analysis revealed the following avoidable unit costs for the decorative jars:
Direct materials$0.25
Direct labor0.03
Unit-related support costs0.10
Batch-related support costs0.12
Product-sustaining support costs0.22
Facility-sustaining support costs0.28
Total cost per jar$1.00
23) The relevant cost per jar is:
A) $0.28 per jar
B) $0.38 per jar
C) $0.72 per jar
D) $1.00 per jar
24) The maximum price that Melodee’s Preserves should be willing to pay for the decorative jars is:
A) $0.28 per jar
B) $0.38 per jar
C) $0.72 per jar
D) $1.00 per jar
Objective 11.6
1) Costs are relevant to a particular decision if they:
A) are variable costs
B) are fixed costs
C) differ across the alternatives being considered
D) remain unchanged across the alternatives being considered
2) When deciding to lease a new cutting machine or continue using the old machine, the following costs are relevant EXCEPT the:
A) $50,000 cost of the old machine
B) $20,000 cost of the new machine
C) $10,000 selling price of the old machine
D) $3,000 annual savings in operating costs if the new machine is purchased
3) For machine-replacement decisions, depreciation is a cost that is:
A) not relevant
B) differential
C) incremental
D) variable
4) ________ is relevant in a decision to replace equipment.
A) Cost of old equipment
B) Book value of old equipment
C) Accumulated depreciation on old equipment
D) Future maintenance costs of old equipment
5) In a decision to keep or replace existing equipment, ________ is a FALSE statement.
A) the book value of the old equipment is irrelevant
B) the disposal value of the old equipment is irrelevant
C) the cost of the new equipment is relevant
D) depreciation on the new equipment is relevant
