learning objective 25 4 1 doro fill company fabricates inexpensive automobiles for s 4306375

learning objective 25 4 1 doro fill company fabricates inexpensive automobiles for s 4306375

Learning Objective 25-4

1) Doro Fill Company fabricates inexpensive automobiles for sale to third world countries. Each auto includes one wiring harness, which is currently made in-house. Details of the harness fabrication are as follows:

Volume

800

units per month

Variable cost per unit

$7

per unit

Fixed costs

$15,000

per month

A factory in Indonesia has offered to supply Dora Fill with ready-made units for a price of $10 each. Assume that Doro Fill's fixed costs are unavoidable, and that the company will not be able to use the excess capacity in any profitable manner. In order to maximize operating income, Doro Fill should not outsource.

2) Doro Fill Company fabricates inexpensive automobiles for sale to third world countries. Each auto includes one wiring harness, which is currently made in-house. Details of the harness fabrication are as follows:

Volume

800

units per month

Variable cost per unit

$7

per unit

Fixed costs

$15,000

per month

A factory in Indonesia has offered to supply Dora Fill with ready-made units for a price of $10 each. Assume that Doro Fill's fixed costs are unavoidable, but the company could use the vacated production facilities to earn an additional $5,000 of profit per month. In order to maximize operating income, Doro Fill should outsource.

3) A company produces 100 microwave ovens per month, each of which includes one electrical circuit. The company currently manufactures the circuit in-house but is considering outsourcing the circuits at a contract price of $28 each. Currently, the cost of producing circuits in-house includes variable costs of $26 per circuit and fixed costs of $5,000 per month. The controller says that they could outsource production of the circuit, if it reduces fixed cost greater than $200 per month. Is this statement true or false?

4) Marlow Company makes bulk quantities of cleaning fluids. They currently sell 1,200 containers a month at a price of $23.75 per unit. If they add a new scent, they could charge $25 per unit for the improved product. It would cost them a total of $800 per month to make that alteration. If they decide to process further, it will improve their operating income.

5) When a company is considering the possibility of processing their product further to achieve higher sales revenues, the rule is as follows: if incremental revenues exceed incremental costs, then further processing will enhance operational profits.

6) When a company is considering the possibility of processing their product further to achieve higher sales revenues, the rule is as follows: as long as the additional processing generates higher sales revenues, it is the preferred alternative.

7) When a company is considering the possibility of processing their product further to achieve higher sales revenues, they must carefully study the production costs needed to make the basic product before processing further in order to come to an informed decision.

8) Verdant Avionics makes aircraft instrumentation. Their basic navigation radio requires $120 in variable costs and requires $3,000 per month in fixed costs. If they process the radio further to enhance its functionality, it will require an additional $40 per unit of variable costs, and $300 per month in fixed costs. The marketing manager believes they would be able to boost their price of the radio from $260 to $280. In making this decision, the amount of additional fixed costs per month is a relevant piece of information.

9) Wing Company makes a special kind of racing tire. Variable costs are $320, and fixed costs are $35,000 per month. Wing sells 600 units per month at a price of $400. If Wing upgrades the quality of the tire, they believe they can boost the price to $450. If so, the variable cost will go up to $350 and the fixed costs will rise by 30%. The CEO wishes to increase his operating income by 20%. If the company decides to upgrade the product according to the data above, the CEO will reach his goal.

10) ________ refer to the value forgone in order to make one particular investment instead of another.

A) Opportunity costs

B) Sunk costs

C) Relevant costs

D) Irrelevant costs

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