Question 1

Victor's Detailing customers would be willing to pay $57 per detail. The company requires a 40% profit on each job. The average job would cost $30. Victor's Detailing uses target-costing. What is the price they should quote a new customer?
A) $30
B) $24
C) $57
D) $54
E) $84

Accepted Answer

The price should be $57 because customers are willing to pay this amount, and it allows for a 40% profit margin above the $30 cost. Target-costing aims to meet the target price customers are willing to pay while achieving desired profit margins.

Question 2

Junior Company currently buys 30,000 units of a part used to manufacture its product at $40 per unit. Recently the supplier informed Junior Company that a 20% increase will take effect next year. Junior has some additional space and could produce the units for the following per-unit costs (based on 30,000 units):
  
If the units are purchased from the supplier, $200,000 of fixed costs will continue to be incurred. In addition, the plant can be rented out for $20,000 per year if the parts are purchased externally.
Required: Should Junior Company buy the part externally or make it internally?

Accepted Answer

The answer of Junior Company currently buys 30,000 units of...

Question 3

Sherpa Company manufactures tents and sleeping bags. Tents are priced at $80, have variable cost of $55, and direct fixed costs of $120,000. Sleeping bags are priced at $60, have variable cost of $35, and direct fixed costs of $66,000. Common fixed costs equal $200,000. Last year, the division sold 5,000 tents and 10,000 sleeping bags.

Accepted Answer

The answer of Sherpa Company manufactures tents and sleeping bags....

Question 4

Sherrell Washington owns a successful hole-in-the-wall bagel shop called Big Apple Bagels. Sherrell wants to expand the shop by leasing the space next door for $500 per month, and adding tables and chairs so that customers can dine in. She figures that the tables and chairs will cost $4,000 and that the bagel machine, that cost $3,500 five years ago, would have to be scrapped in favor of a larger machine costing $6,400. She thinks sales would increase by $4,000 per month. Variable costs are 50% of sales.

Accepted Answer

The answer of Sherrell Washington owns a successful hole-in-the-wall bagel...

Question 5

Refer to Figure 13-10.

Accepted Answer

The answer of Refer to Figure 13-10.
 ...

Question 6

Brorsen, Inc., has just designed a new product with a target cost of $64. Brorsen requires new product to have a profit of 20%. What is the target price for the new product?
A) $64
B) $12.80
C) $320
D) $80
E) $53

Accepted Answer

To calculate the target price, we first need to determine the cost that will allow for a 20% profit. To do this, we use the following formula: 
Target cost / (1 - Desired Profit Percentage) = Cost 
$64 / (1 - 0.20) = Cost 
$64 / 0.80 = $80

Therefore, the target price for the new product would be $80.

Question 7

Fester Company was making a product for $60 and selling it for $80. A competitor began selling the same product for $68. If Fester is to meet the competition's price, and maintain the same amount of profit per unit, what is target cost?
A) $40
B) $60
C) $48
D) $17
E) $63

Accepted Answer

To maintain the same amount of profit per unit, Fester will need to reduce their cost to match their competitor's price. This means they need to subtract the same amount from their original profit of $20 per unit to get a new target profit of $12 per unit ($20 - $8). Therefore, the target cost would be the sum of the target profit and the competitor's selling price: $68 + $12 = $80. To find the original cost, we can subtract the original profit from the original selling price: $80 - $20 = $60. Therefore, Fester's target cost would be $80 - $12 = $68, and the amount they need to decrease their cost from the original is $60 - $68 = $8 per unit.

Question 8

Welker Company is designing an all-in-one grill and cooler aimed at sports fans. The company believes that the product can be sold for $180; and it requires a 30% profit on new products. What is the target cost of the all-in-one grill and cooler?
A) $140
B) $54
C) $175
D) $126
E) $168

Accepted Answer

Target cost = selling price - desired profit
Desired profit = 30% of selling price = 0.3 x $180 = $54
Target cost = $180 - $54 = $126

Therefore, the target cost of the all-in-one grill and cooler is $126. Choice D is the correct answer.

Question 9

Salley Company makes pagers. Currently, Salley purchases 10,000 plastic housings per year from an outside company for $1 each. One of Salley's engineers suggested that the company make its plastic housings in-house. Estimated unit costs are as follows:
  * Fixed overhead is $2,400 per year in equipment costs specifically traceable to the plastic housing line and $1,600 per year in general overhead costs to be allocated to this line

Accepted Answer

The answer of Salley Company makes pagers. Currently, Salley purchases...

Question 10

Rippey Corporation manufactures a single product with the following unit costs for 5,000 units:
  Recently, a company approached Rippey Corporation about buying 1,000 units for $225. Currently, the models are sold to dealers for $412.50. Rippey's capacity is sufficient to produce the extra 1,000 units. No additional selling expenses would be incurred on the special order.
Required:

Accepted Answer

The answer of Rippey Corporation manufactures a single product with...

Question 11

Island Princess Pineapples purchases pineapples from area farmers and processes them into rings, juice, and skins. The cost of the pineapples is a joint cost, as is the initial processing in which the fruits are skinned, cored, and sliced into rings. At the split-off point, Island Princess sells the skins (for fertilizer). Juice and rings are processed further (further processing costs occurs for cooking and canning). Data for the three products follows:

Accepted Answer

The answer of Island Princess Pineapples purchases pineapples from area...

Question 12

Veblen Company manufactures a variety of athletic shoes: basketball, running, and tennis. Sales of the tennis shoes have fallen off. Veblen is considering several options: 1) drop the tennis shoe line; 2) replace the tennis shoe line with golf shoes; 3) retool the tennis shoe line to make "Airtennies." Price and cost data are as follows:
  If the tennis shoe line is dropped, the $50,000 fixed cost is totally avoidable.

Accepted Answer

The answer of Veblen Company manufactures a variety of athletic...

Question 13

Teller Company has designed a caller ID machine with a large screen that can be seen easily from across the room. The Sales Department believes that this product can be sold for $30 each. Teller requires that all new products yield 15% profit. What is the target cost of the new product?
A) $26
B) $4.50
C) $30
D) $25.50
E) $28.50

Accepted Answer

The target cost can be calculated using the formula:

Target Cost = Selling Price - Desired Profit

We are given that the selling price is $30, and the desired profit is 15% of the selling price, which is:

Desired Profit = 0.15 x $30 = $4.50

Therefore, the target cost is:

Target Cost = $30 - $4.50 = $25.50

So, the best choice is D.

Question 14

Tapeo Company has always made its electronic components that go into their GPS systems in-house. Streeter Company has offered to supply these electronic components at a price of $38 each. Tapeo uses 18,000 units of these components each year. The cost per unit of this component is as follows:
  Assume that 45% of Tapeo Company's fixed overhead would be eliminated if the electronic component was no longer produced in-house.
Required:
A. If Tapeo decided to purchase the electronic component from Streeter Company how much would its operating income increase or decrease?
B. Should Tapeo continue to make the electronic component or buy it from Streeter Company?

Accepted Answer

The answer of Tapeo Company has always made its electronic...

Question 15

Kara Ring owns a successful flower shower called Always Blooming. Kara wants to expand the shop by leasing the space next door for $1,200 per month, and adding refrigerators to keep the flowers fresh and two checkout counters so the customers do not have to wait in long lines. She currently pays $1,000 per month for her current store space and has two refrigerators that cost her $6,000 each two years ago. She figures that the new refrigerators and counters will cost $25,000. She also has determined that the current cash register that initially cost her $1,000 two years ago and has been depreciated $250 each year would have to be replaced with two new cash registers costing $1,500 each. She thinks sales would increase by $10,000 per month. Variable costs are 40% of sales.
Required:

Accepted Answer

The answer of Kara Ring owns a successful flower shower...

Question 16

Refer to Figure 13-10. Upon hearing of the analysis of the cost of making the metallic ink in-house versus buying it from an outside supplier, Jim Webb, the production supervisor said "That's nuts! This ink is a real pain to make and $1.24 per ounce sounds like a bargain to me!" Based on Jim's feelings, Anna Ruiz (a new CMA in the accounting office) did an ABC analysis of ink production. She came up with the same direct materials, direct labor and variable overhead, as well as the following information on activities required by metallic ink production.
  The metallic ink requires 300 purchase orders per year and 80 setups.

Accepted Answer

The answer of Refer to Figure 13-10. Upon hearing of...

Question 17

Tyler Company has been approached by a new customer with an offer to purchase 6,000 units of its product KR200 at a price of $11 each. The existing sales would not be affected by this special order. Tyler normally produces 40,000 units but plans to produce and sell 30,000 in the coming year. The normal sales price is $18 per unit. Unit cost information is as follows:
 If Tyler accepts the order, no fixed manufacturing activities will be affected because there is sufficient excess capacity.

Accepted Answer

The answer of Tyler Company has been approached by a...

Question 18

Victor's Detailing customers would be willing to pay $57 per detail. The company requires an 80% markup on each job. The average job would cost $30. Victor's Detailing uses markup pricing to set the price on each job. What is the price Victor should quote a new customer?
A) $30
B) $24
C) $54
D) $84
E) $240

Accepted Answer

To find the price Victor should quote a new customer, we need to use the formula:
Price = Cost x (1 + Markup)
where Cost is the average cost per job ($30) and Markup is the markup percentage required by the company (80% or 0.8 in decimal form).
Plugging in these values, we get:
Price = $30 x (1 + 0.8)
Price = $30 x 1.8
Price = $54
Therefore, the best choice is C.

Question 19

Victor's Detailing customers would be willing to pay $57 per detail. The company requires a 40% profit on each job. The average job would cost $30. Victor's uses target costing. Victor's Detailing should:
A) sell their business.
B) ask their customers to pay more.
C) sell their services at the price customers are willing to pay.
D) find a way to reduce costs.
E) reduce their required percentage to stay in business.

Accepted Answer

Target cost = Price - (price × profit percent) = $57 -($57 × 0.40) = $57 - $22.80 = $34.20
Victor's cost is below the target cost.He should sell at what the market will pay.

Question 20

Shear-it, Inc., produces paper shredders. Shear-it is considering a new shredder design for home offices. The marketing vice president believes that a basic unit in a variety of attractive colors could be sold for $70. Shear-it requires that all new products yield 30% profit. What is the target cost of the new shredder?
A) $21
B) $91
C) $49
D) $100
E) $63.70

Accepted Answer

Target cost = Selling price - Desired profit 
Given, selling price = $70 and desired profit = 30% 
= $70 * 0.3 = $21 
Target cost = $70 - $21 = $49

Quiz 13: Short-Run Decision Making: Relevant Costing

Victor's Detailing customers would be willing to pay $57 per detail. The company requires a 40% profit on each job. The average job would cost $30. Victor's Detailing uses target-costing. What is the price they should quote a new customer?

Refer to Figure 13-10.

Brorsen, Inc., has just designed a new product with a target cost of $64. Brorsen requires new product to have a profit of 20%. What is the target price for the new product?

Fester Company was making a product for $60 and selling it for $80. A competitor began selling the same product for $68. If Fester is to meet the competition's price, and maintain the same amount of profit per unit, what is target cost?

Welker Company is designing an all-in-one grill and cooler aimed at sports fans. The company believes that the product can be sold for $180; and it requires a 30% profit on new products. What is the target cost of the all-in-one grill and cooler?

Teller Company has designed a caller ID machine with a large screen that can be seen easily from across the room. The Sales Department believes that this product can be sold for $30 each. Teller requires that all new products yield 15% profit. What is the target cost of the new product?

Victor's Detailing customers would be willing to pay $57 per detail. The company requires an 80% markup on each job. The average job would cost $30. Victor's Detailing uses markup pricing to set the price on each job. What is the price Victor should quote a new customer?

Victor's Detailing customers would be willing to pay $57 per detail. The company requires a 40% profit on each job. The average job would cost $30. Victor's uses target costing. Victor's Detailing should: