1. A company is currently operating at 80% capacity producing and 5,000 units. Current cost information relating to this production is shown in the table below.
1. A company is currently operating at 80% capacity producing and 5,000 units. Current cost information relating to this production is shown in the table below.
Per Unit
Sales Price
$34
Direct material
$2
Direct labor
$3
Variable overhead
$4
Fixed overhead
$5
The company has been approached by a customer with a request for a 100-unit special order. What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?
Any amount over $34 per unit.
Any amount over $20 per unit.
Any amount over $14 per unit.
Any amount over $9 per unit.
Any amount over $5 per unit.
5,000/.80-5,000=1,250 unit capacity available $2+$3=$9 incremental costs
2. A cost that cannot be avoided or changed because it arises from a past decision, and is irrelevant to future decisions, is called a(n):
Uncontrollable cost
Incremental cost
Opportunity cost
Out-of-pocket cost
Sunk cost
3. Alpha Co. can produce a unit of Beta for the following costs:
Direct material $8
Direct labor 24
Overhead 40
Total costs per unit $72
An outside supplier offers to provide Alpha with all the Beta units it needs at $60 per unit. If Alpha buys from the supplier, Alpha will still incur 40% of its overhead. Alpha should:
Buy Beta since the relevant cost to make it is $72.
Make Beta since the relevant cost to make it is $56.
Buy Beta since the relevant cost to make it is $48.
Make Beta since the relevant cost to make it is $48.
Buy Beta since the relevant cost to make it is $56.
$72- (40% x $40) = $56 of relevant cost
4. An opportunity cost:
is an unavoidable cost
requires a current outlay of cash
results from past managerial decisions
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