09 Jan 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