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Exam 30: Cost-Revenue Analysis for Decision Making

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Question 41

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Timkon Manufacturing has provided the following operating results for its recent operations: $\begin{array}{lr}\text { Beginning inventory of finished goods } & 4,500 \\\text { Units produced (no work in process) } & 10,000 \\\text { Units sold } & 12,500 \\\text { Units in ending inventory of finished goods } & 2,000\\\text { Sales price }&\$ 50 \text { per unit }\\\text { Variable manufacturing costs }&\$ 20 \text { per unit }\\\text { manufactured Variable selling expenses }&\$ 2 \text { per unit sold }\\\text { Variable administrative expenses } & \$ 1 \text { per unit sold Fixed manufacturing } \\\text { costs for the year } & \$ 100,000 \\\text { Fixed selling expenses for the year } & \$ 52,000 \\\text { Fixed administrative expenses for the year } & \$ 84,000\end{array}$ - Net income under the direct (variable) costing method is:

A) $25,000
B) $76,500
C) $126,500
D) $101,500

E) C) and D)
F) All of the above

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Question 42

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Marginal income on sales is the equivalent of contribution margin since both take all variable costs into consideration.

A) True
B) False

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Question 43

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The variable operating expenses are deducted from the manufacturing margin to arrive at the--------------on sales.

A cost that has already been incurred and is irrelevant for decision-making purposes is called a(n)----------cost.

Direct costing differs from absorption costing in that

In its first year of operations, a company has sales of $110,000, ending finished goods inventory of $12,000, variable manufacturing costs of $48,000, and fixed manufacturing costs of $30,000 for the year. Assuming the company uses direct costing, the manufacturing margin for the year is

A segment of a business shows a contribution margin of $30,000 but incurs controllable fixed costs of $26,000. Eliminating that segment will result in an increase in company-wide net income.

The difference between revenue and variable costs is referred to as the---------------- .

McAdd Industries is considering whether to continue making part MPG 411 or buying the part from a supplier. The supplier can sell the needed number of parts (47,000 projected)to McAdd for an amount that is above the company's current cost to manufacture it. If McAdd decides to purchase the parts from its supplier, it will be able to reconfigure the manufacturing floor in order to allow increased production of 50 of its product for an increased contribution margin of $17,000 for the year. The old machine has a book value of $39,000, and can be sold for $4,000. Discuss this situation. What are the considerations?

When direct costing is used, cost of goods sold reflects

A cost that does not change regardless of the option selected need not be considered in the decision-making process.

Which of the following represents a valid reason for rejecting a special order?

Fixed costs often are not relevant in the decision-making process as fixed costs do not vary in total within a relevant range of activity.

Timkon Manufacturing has provided the following operating results for its recent operations: $\begin{array}{lr}\text { Beginning inventory of finished goods } & 4,500 \\\text { Units produced (no work in process) } & 10,000 \\\text { Units sold } & 12,500 \\\text { Units in ending inventory of finished goods } & 2,000\\\text { Sales price }&\$ 50 \text { per unit }\\\text { Variable manufacturing costs }&\$ 20 \text { per unit }\\\text { manufactured Variable selling expenses }&\$ 2 \text { per unit sold }\\\text { Variable administrative expenses } & \$ 1 \text { per unit sold Fixed manufacturing } \\\text { costs for the year } & \$ 100,000 \\\text { Fixed selling expenses for the year } & \$ 52,000 \\\text { Fixed administrative expenses for the year } & \$ 84,000\end{array}$ - Net income under the absorption costing method is:

When inventories decrease, the absorption costing income statement will report a lower net income than the net income reported under variable costing.

The difference in net income reported under direct costing versus the net income reported under absorption costing is calculated based on the change in the inventory levels times the unit fixed manufacturing overhead cost.

Which of the following would not be relevant to a decision about whether to continue making a part or buy it from an outside supplier?

A segment of a business should probably be discontinued if it does not produce a positive----------.

Which of the following is NOT considered regarding a special order?

Costmore Manufacturing has provided the following operating results for its first year operations: $\begin{array}{lr}\text { Beginning inventory of finished goods } & 0 \\\text { Units produced (no work in process) } & 22,000 \\\text { Units sold } & 18,000 \\\text { Units in ending inventory of finished goods } & 4,000\\\text { Sales price }&\$55\text { per unit }\\\text { Variable manufacturing costs }&\$25\text { per unit }\\\text { manufactured Variable selling and }\text { administrative expenses }&\$ 7 \text { per unit }\\\text { sold Fixed manufacturing }\text { costs for the year } & \$ 110,000 \\\text { Fixed selling and administrative expenses for the year } & \$ 124,000\end{array}$ - Using direct costing, the value of ending inventory of finished goods is: