50. The Sand Cruiser is a takeout food store at a popular beachside resort. Teresa Texton,
owner of the Sand Cruiser, was deciding how much refrigerator space to devote to four different
beverages. Appropriate data on the four beverages follow:
Limeade
Lemonade Ginger
Ale Grape
Juice
Sales price per case $21.60 $23.00 $21.60 $46.10
Variable cost per case 16.20 18.20 16.10 36.20
Cases sold per foot of
shelf space per day
30
28
5
6
The contribution per foot of shelf space per day for Limeade is:
51. For short-run product-mix decisions, relevant costs (for the seller) include short-run
_________ costs plus any ____________ costs.
52. Opportunity costs:
53. The contribution margin per machine hour for a given product is calculated as:
54. When there is limited capacity, the minimum acceptable price for a “special sales order”
should cover the _______________ from the product that is sacrificed plus the incremental costs
of the product being produced.
55. When a firm has surplus capacity (that is, no resource constraints), relevant costs for
decision-making (for example, determining short-term product mix) will, relative to the situation
where the firm faces one or more resource constraints, be:
56. In the situation where a firm produces multiple products and has a single resource
constraint (e.g., machine hours), the most profitable use of available capacity (machine hours)
requires that we assess:
57. The practice of setting prices below average variable cost and with accompanying plans
to raise prices later to recover the losses from the lower prices is referred to as:
58. When deciding to purchase a new cutting machine or continue using an existing machine,
the following costs are all relevant except the:
59. Relevant costs for a make–or-buy decision for a component part include all of the
following except:
60. When deciding whether to discontinue a segment of a business, managers should focus
on:
61. In deciding whether to drop or keep a product line, all of the following are relevant to the
decision except:
62. The Tee Box is a golf shop inside the clubhouse of a North Carolina golf course. Derek
Dunlop, owner of the Tee Box, was deciding how much shelf space to devote to four different golf
ball types. Derek had a maximum front shelf space of 15 feet to devote to the four golf ball types.
He wanted a minimum of three feet and a maximum of seven feet of front shelf for each golf ball
type. Appropriate data on the four ball types follow:
Distance Spin Straight Durable
Sales price per case $24.20 $22.90 $23.60 $21.10
Variable costs per case 15.80 16.20 16.80 15.10
Cases sold per foot of
shelf space per day
32
26
25
38
The daily contribution per foot of front shelf space for Straight is:
63. Employee morale and social responsibility represent two examples of:
64. Which of the following items does not have to be considered when evaluating a make–or–
buy decision?
65. Relevant costs in a make-vs.-buy decision of a part include:
66. ABC, Inc. is considering whether to repair a five-year-old fork lift or to purchase a used
one as a replacement. The company estimates that it would take $3,000 to repair the existing
fork lift, which is the same amount needed to purchase the used fork lift. Cost-related
information for both assets is as follows:
Existing Fork Lift Used Fork Lift
Acquisition cost $15,000 $3,000
Repairs cost $3,000 –
Annual operating costs (gas, etc.) $2,280 $2,100
The cost(s) not relevant for this asset-replacement decision is/are:
67. ABC, Inc. is considering whether to repair a five-year-old fork lift or to purchase a used
one as a replacement. The company estimates that it would take $3,000 to repair the existing
fork lift, which is the same amount needed to purchase the used fork lift. Cost-related
information for both assets is as follows:
Existing Fork Lift Used Fork Lift
Acquisition cost $15,000 $3,000
Repairs cost $3,000 –
Annual operating costs (gas, etc.) $2,280 $2,100
Under the assumption that the company would like to minimize total cost, what should the
company do, and what are the total cost savings in the first year?
Decision First-Year Cost Savings
A) Buy the used fork lift $9,780
B) Repair the existing fork lift $5,518
C) Buy the used fork lift $180
D) Repair the existing fork lift $5,280
68. The Car Lot is a New York car dealership located in a highly visible area along a
prominent highway. Fred Barns, owner of The Car Lot, is trying to decide how much front-row
space along the highway to devote to each of four different car models. Fred has a maximum
front-row space of 200 feet to devote to the four car models. He wants a minimum of 20 feet and
a maximum of 80 feet of front-row space for each car model. Appropriate data on the four car
models follow:
Convertible Truck Sedan SUV
Sales price per unit $40,000 $30,000 $60,000 $25,000
Variable costs per unit 32,000 23,000 45,000 16,000
UNITS sold per 10 feet of
front-row space per month 10 18 6 25
The convertible model’s monthly contribution per 10 feet of front-row space is calculated to be:
69. Preston Industries, Inc. currently manufactures part QX100, which is used in several
products produced by the company. Monthly production costs for 10,000 units of QX100 are as
follows:
Direct materials $80,000
Direct labor $20,000
Variable overhead costs $50,000
Fixed overhead costs $40,000
Total manufacturing costs $190,000
Accounting has estimated that 20% of the fixed overhead costs currently assigned to QX100
would not be needed if the company chose to purchase the part from an outside supplier.
Preston currently has the option of purchasing the part from an outside supplier at $16.00 per
unit.
If the company accepts the offer from the outside supplier, the monthly avoidable costs (that is,
costs that would no longer be incurred) would be:
70. Preston Industries, Inc. currently manufactures part QX100, which is used in several
products produced by the company. Monthly production costs for 10,000 units of QX100 are as
follows:
Direct materials $80,000
Direct labor $20,000
Variable overhead costs $50,000
Fixed overhead costs $40,000
Total manufacturing costs $190,000
Accounting has estimated that 20% of the fixed overhead costs currently assigned to QX100
would not be needed if the company chose to purchase the part from an outside supplier.
Preston currently has the option of purchasing the part from an outside supplier at $16.00 per
unit.
Based solely on a short-run financial analysis, the maximum price that Preston should be willing
to pay the outside vendor for each unit of QX100 is:
71. Diamond Company has three product lines, A, B, and C. The following financial
information is available:
Item Product Line A Product Line B Product Line C
Sales $30,000 $45,000 $12,000
Variable costs $18,000 $24,000 $7,500
Contribution margin $12,000 $21,000 $4,500
Fixed costs:
Avoidable $4,500 $9,000 $3,000
Unavoidable $3,000 $4,500 $2,000
Operating income $4,500 $7,500 ($500)
Diamond is thinking of dropping Product Line C because it is reporting an operating loss.
Assuming the company drops Product Line C and does not replace it, operating income for the
firm will likely:
72. Diamond Company has three product lines, A, B, and C. The following financial
information is available:
Item Product Line A Product Line B Product Line C
Sales $30,000 $45,000 $12,000
Variable costs $18,000 $24,000 $7,500
Contribution margin $12,000 $21,000 $4,500
Fixed costs:
Avoidable $4,500 $9,000 $3,000
Unavoidable $3,000 $4,500 $2,000
Operating income $4,500 $7,500 ($500)
Assuming that Product Line C is discontinued and the manufacturing space formerly devoted to
this line is rented for $6,000 per year, operating income for the company will likely:
73. Smith Co., maker of high-quality eyewear, incurs fixed costs of $18 and variable costs of
$36 in making one unit of its matrix line of sunglasses, based on current demand of 100,000 units
per year. Smith Co.’s major supplier has offered to make all 100,000 matrix sunglasses for $44
each. If Smith accepts the offer of the supplier, Smith will save $4 per unit in fixed costs. Based
solely on this information, what is the recommended decision and how much will be saved based
on this decision?
74. Orange Computer Co. is quickly becoming a major player in the personal computer
market. The company currently has multiple companies producing products that go into an
Orange computer. This practice of having an outside firm provide a function for Orange Computer
Co. is called: