work_at_home_soultions_ch13[1]

work_at_home_soultions_ch13[1] - Chapter 13 Relevant...

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Unformatted text preview: Chapter 13 Relevant Information for Special Decisions Exercise 13-1 Cost Item Relevance Behavior Cost per box Relevant Variable Sales commissions per box Relevant Variable Rent of display space Irrelevant Fixed Advertising Relevant Fixed Since the rental costs do not differ between the alternatives, they cannot be avoided regardless of which alternative is chosen. Accordingly, these costs are irrelevant. Exercise 13-2 Cost Items Relevance Behavior Materials cost ($7 per Unit) Relevant Variable Company presidents salary Irrelevant Fixed Depreciation on manufacturing equipment Irrelevant Fixed Customer billing costs (1% of sales) Irrelevant Variable Rental cost of manufacturing facility Relevant Fixed Advertising costs Irrelevant Fixed Labor cost ($5 per Unit) Relevant Variable Sales commissions (2% of sales) Irrelevant Variable Salaries of administrative personnel Irrelevant Fixed Shipping and handling ($0.25 per unit) Irrelevant Variable Depreciation on office furniture Irrelevant Fixed Manufacturing supplies ($0.25 per unit) Relevant Variable Production supervisors salary Relevant Fixed 13-1 Exercise 13-2 (continued) All unit-level manufacturing costs (i.e., materials, labor, manufacturing supplies) are relevant because they could be avoided if the products were purchased instead of manufactured. Similarly, it is highly probable that the product-sustaining and facility-sustaining costs that are associ- ated with making the products (i.e., production supervisors salary and rental of manufacturing facility) can be avoided. In contrast, selling ex- penses and administrative costs (i.e., presidents and other administrat- ors salaries, billing cost, advertising, sales commissions, shipping and handling) are not avoidable because Lopez will continue to incur these costs regardless of whether it makes the product or buys it from a sup- plier. Accordingly, these costs are irrelevant to the outsourcing de- cision. Similarly, the depreciation expenses on manufacturing equip- ment and office furniture are irrelevant. These expenses constitute sunk costs that cannot be avoided because they have already been incurred. Exercise 13-3 a. Fixed Costs Bracelet A Bracelet B Advertising cost $ 8,000 $6,000 Depreciation on existing equipment 5,000 4,000 Total fixed costs $13,000 $10,000 b. Variable Costs Bracelet A Bracelet B Cost of materials per unit $18 $ 37 Cost of labor per unit 32 32 Total variable costs $50 $69 13-2 c....
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work_at_home_soultions_ch13[1] - Chapter 13 Relevant...

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