Relevant Costing - Solutions
1. Ans: A
Solution:
| Opportunity cost of sales foregone if special project is undertaken ($8.35 × 240) | $2,004 |
| Less: delivery cost | 71 |
| Relevant cost of 240 kilograms of raw material | $1,933 |
2. Ans: C
Solution:
Demand for wood carvers:
| | Letter Openers | Elvis Statues | Candle Holders |
| Labor-hours per unit | 1 | 6 | 2 |
| Monthly demand in units | 800 | 800 | 800 |
| Total hours required | 800 | 4,800 | 1,600 |
Total time required for all products: 7,200
Optimal production plan:
| | Letter Openers | Elvis Statues | Candle Holders |
| Selling price per unit | $30.00 | $80.00 | $42.00 |
| Variable cost per unit | $20.00 | $40.00 | $20.00 |
| Contribution margin per unit | $10.00 | $40.00 | $22.00 |
| Labor-hours per unit | 1 | 6 | 2 |
| Contribution margin per hour | $10.00 | $6.67 | $11.00 |
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4. Ans: A
Solution:
| | Total needed | Inventory | # of units to purchase on market | Relevant price | Total cost |
| F85 | (3,000 × 5) = 15,000 | | 15,000 | $4.75 | $ 71,250 |
| | | | | | |
| E71 | (3,000 × 5) = 15,000 | | (15,000 − 13,680) = 1,320 | $4.70 | 6,204 |
| | | 13,680 | | $3.60 | 49,248 |
| Minimum acceptable price for 3,000 units of QEA | $126,702 |
5.
| J | K | L | M |
A | 2nd | 3rd | 1st | 4th |
B | 2nd | 1st | 4th | 3rd |
C | 2nd | 3rd | 4th | 1st |
D | 2nd | 1st | 3rd | 4th |
6. ____________________________________________________________________________
Answer: $17,000
Unit Level = $100,000 / 8,000 * 800 = $10,000
Product Level = 20% * $20,000 = $4,000
Batch Level = $12,000 / 100 * 25 = $3,000
Facility Level = $240,000 / 48,000 * 3,000 = $15,000 – should not allocate
$10,000 + 4,000 +3,000 = $17,000
7. The Carolina Furniture Company manufactures kitchen cabinets. The company has always used direct labor cost to allocate overhead to its two cabinet lines, Heritage and Contemporary. The manufacture of both lines has been labor intensive. Recently, the company automated production of its Contemporary line of cabinets. It continues to use labor dollars as the overhead allocation base for both lines. This practice will likely result in which of the following?
A Overhead cost will be allocated accurately between the two lines.
B Too much overhead cost will be allocated to the Heritage line.
C Too much overhead cost will be allocated to the Contemporary line.
D b and c.
