C7: Differential Cost Analysis Flashcards
Multiple Choice Problem
The cost to Produce Part A was P10 per unit in 2023. During 2024, it has increased to P11 per unit. In 2024, Supplier Company has offered to supply Part A for P9 per unit. For the make-or-buy decision,
A. Incremental revenues are P2 per unit
B. Incremental costs are P1 per unit
C. Net relevant costs are P1 per unit
D. Differential costs are P2 per unit
D. Differential costs are P2 per unit
A company uses 10,000 units of Part A in producing its products. A supplier offers to make Part A for P7. The company has relevant costs of P8 a unit to manufacture Part A. If there is excess capacity, the opportunity cost of buying Part A from the supplier is
A. P0
B. P10,000
C. P70,000
D. P80,000
B P80,000
XYZ Company currently manufactures a Product X as it main product. The cost per unit are as follows:
Direct materials and direct labor P11
Variable overhead 5
Fixed overhead 8
Total 24
The fixed overhead is an allocated common cost. How much is the relevant cost of product X?
A. P24
B. P16
C. P11
D. P19
B. P16
Using the above data in No. 3: ABC Company has contacted XYZ with an offer to sell it 5,000 of product X for P18 each. If XYZ makes the units, variable caosts are P11 per unit. Fixed costs are P12 per unit however P5 per unit is avoidable. Should XYZ make or buy the units?
A. Buy; savings = 25,000
B. Buy; savings = 10,000
C. Make; savings = 20,000
D. Make; savings = 10,000
D. Make; savings = 10,000
Corny Crunchers has three product lines. It’s only unprofitable line is Corn Nuts, the results of which appear below for 2024:
Sales 350,000
VA. Exp (230,000)
Fixed Exp (150,000)
Net Loss (30,000)
If this product line is eliminated, 20% of the fixed expenses can be eliminated. How much are the relevant costs in the decision to eliminate this product line?
A. 45,000
B. 380,000
C. 335,000
D. 275,000
D. 275,000
North Division has the following information
Sales 600,000
Var. Exp 320,000
Fixed Exp 310,000
If this division is eliminated the fixed expenses will be allocated to the company’s other divisions. What is the incremental effect on net income if the division is dropped?
A. 30,000 increase
B. 310,000 decrease
C. 280,000 decrease
D. 290,000 increase
C. 280,000 decrease
Western, Inc. produces chocolate chip cookies. Cost for producing one batch appear below:
DM 8
DL 3
VOH 1
FOH 4
An outside supplier has offered to produce the cokokies for P14 per batch. If the company decides to buy instead of make the cookies, what is the maximum price it would pay?
A. 16
B. 12
C. 13.60
D. 14.40
B. 12
Eastern Inc. is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is 16, while the costr of assembling each unit is estimated at P17. Unassembled units can be sold for P55, while the assemebled units could be sold for P71 per unit. What decision should Eastern Inc. make?
A. Sell before assembly, the company will save P1 per unit
B. Sell before assembly, the cimpany will save P15 per unit
C. Process further, the company will save P1 per unit
D. Process further, the company will save P16 per unit
A. Sell before assembly, the company will save P1 per unit
Southern Company sells office chairs with a selling price of P25 and a contribution margin per unit of P15. It takes 3 machine hours to produce one chair. How muchis the contribution margin per unit of limited resources?
A. 5
B. 3.33
C. 45
D. 10
A. 5
Electronics Inc. has 10,000 obselete calcultors, which are carried in inventory at a cost of P20,000. If the calculators are scrapped, they can be sold for P1 each (for parts). If they are repackaged, at a cost P15,000, they could be sold to toy stores for P2.50 per unit. What alternative should be chosen, why?
A. Scrap; profit is 1,000 greater
B. Repackage; revenue is 5,000 greater than cost
C. Scrap; incremental loss is 9,000
D. Repackage; receive profit of 10,000
A. Scrap; profit is 1,000 greater
