Chapter 23: Q8DQ (page 1049)
Identify the incremental costs incurred by Apple for shipping one additional iPod from a warehouse to a retail store along with the store’s normal order of 75 iPods.
The incremental cost is the relevant cost in decision-making.
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Steeze Co. makes snowboards and uses the total cost approach in setting product prices. Its costs for producing 10,000 units follow. The company targets a profit of \(300,000 on this product.
Variable Costs per Unit
Direct materials \)100
Direct labor . 25
Overhead 20
Selling . 5
Fixed Costs (in total)
Overhead $470,000
Selling . 105,000
Administrative. 325,000
1. Compute the total cost per unit.
2. Compute the markup percentage on total cost.
3. Compute the product’s selling price using the total cost method.
Colt Company owns a machine that can produce two specialized products. Production time for Product TLX is two units per hour and for Product MTV is five units per hour. The machine’s capacity is 2,750hours per year. Both products are sold to a single customer who has agreed to buy all of the company’s output up to a maximum of 4,700 units of Product TLX and 2,500 units of Product MTV. Selling prices and variable costs per unit to produce the products follow. Determine (1) the company’s most profitable sales mix and (2) the contribution margin that results from that sales mix.
\(s per unit Product TLX Product MTV
Selling price per unit . \)15.00 $9.50
Variable costs per unit 4.80 5.50
José Ruiz wants to start a company that makes snowboards. Competitors sell a similar snowboard for \(240 each. José believes he can produce a snowboard for a total cost of \)200 per unit, and he plans a 25% markup on his total cost. Compute José’s planned selling price. Can José compete with his planned selling price?
A division of a large company reports the information shown below for a recent year. Variable costs and direct fixed costs are avoidable, and 40% of the indirect fixed costs are avoidable. Based on this information, should the division be eliminated?
Sales . \(200,000
Variable costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,000
Fixed costs
Direct . 30,000
Indirect . 50,000
Operating loss \) (25,000)
Identify some qualitative factors that should be considered when making managerial decisions.
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