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131. The difference between the summed costs of two alternatives in a decision is known as the __________________.
132. _____________________ are simply those factors that are hard to put a number on, including things like political
pressure and product safety.
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133. Most short-run decisions require extensive consideration of ___________.
134. If a future cost is the same for more than one alternative, and it has no effect on the decision is known as a(n)
_____________ cost.
135. In order to be classified as a _________________, a cost must possess these two characteristics: 1) they are future
costs and 2) they differ across alternatives.
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136. The benefit sacrificed or foregone when one alternative is chosen over another is known as the
____________________.
137. A cost that cannot be affected by any future action is called a(n) _______________.
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138. A manager will make a __________________ when determining if a specially priced order should be accepted or
rejected.
139. Segmented reports are helpful for managers to make _______________ decisions.
140. The decision on whether to produce a product internally or purchase it from a supplier is an example of a
_______________.
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141. __________________ have common processes and costs of production up to a split-off point.
142. ______________ is the point at which products become distinguishable after passing through a common process.
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143. All ______________ expenses will vanish if a particular segment is eliminated.
144. _______________________ focus on whether a product should be processed beyond the split-off point.
145. In the presence of multiple constraints the solution is considerably more complex than for one constraint and requires
a technique known as ____________________.
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146. ________________ refers to the relative amount of each product manufactured by a company.
147. Expenses that persist even if one of the segments to which they relate is eliminated are known as
________________.
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148. A ____________ is a subunit of a company of sufficient importance to warrant the production of performance
reports.
149. On a segmented income statement, fixed expenses are broken down into _____________ and ______________.
150. The profit contribution each segment makes toward covering a company’s common fixed costs is called
______________.
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151. Limited resources or a limited demand for a product are examples of ______________.
152. A method of determining the cost of a product or service based on the price that customers are willing to pay is
called ________________.
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153. The percentage that is applied to the base cost is known as the _____________.
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154. Decision model
155. Sunk costs
156. Differential cost
157. Joint products
158. Keep-or-drop decisions
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159. Make-or-buy decisions
160. Sell-or-process-further decision
161. Special-order decisions
162. Split-off point
163. Constraints
164. Markup
165. Target costing
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Subjective Short Answer
166. 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.
A. What are the relevant costs and benefits of expanding into the new space?
B. What are the irrelevant costs and benefits of expanding into the new space?
167. Kara Ring owns a successful flower shop 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.
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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:
A. What are the relevant costs and benefits of expanding into the new space?
B. What are the irrelevant costs and benefits of expanding into the new space?
168. 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:
Basketball Running Tennis Golf Airtennies
Price $90 $65 $40 $60 $70
Variable cost/unit $45 $40 $35 $43 $50
Fixed costs $200,000 $210,000 $50,000 $50,000 $90,000
Number of units 10,000 15,000 2,500 25,000 6,000
If the tennis shoe line is dropped, the $50,000 fixed cost is totally avoidable.
A. Calculate the impact on operating income, using relevant amounts only, for keeping the tennis shoe line.
B. Calculate the impact on operating income, using relevant amounts only, for option 1.
C. Calculate the impact on operating income, using relevant amounts only, for option 2.
D. Calculate the impact on operating income, using relevant amounts only, for option 3.
E. Which option is best?
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169. 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:
Direct materials $4.00
Direct labor 2.75
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Variable overhead 1.50
Fixed overhead 3.25
Total $11.50
If Tyler accepts the order, no fixed manufacturing activities will be affected because there is sufficient excess capacity.
Required:
A. By how much will profit increase or decrease if the order is accepted?
B. Should Tyler accept the special order?
170. 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):
Direct materials $16
Direct labor 12
Variable overhead 12
Fixed overhead 10
Total $50
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?
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171. 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:
Direct material $13.75
Direct labor 16.00
Variable overhead 7.00
Fixed overhead 8.25
Total $45.00
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?