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Chapter_7_Assignment_Solution - Chapter 7 Assignment...

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Chapter 7 Assignment Solution Remember: Fixed costs do not change unless you are told otherwise in a problem. MULTIPLE CHOICE: 1. Which of the following would not be a factor in the consideration of whether or not a special order should be accepted? A. Excess capacity B. Variable costs C. Sunk Costs D. Qualitative factors E. Quantitative factors 2. Quinton Products manufactures digital cameras. Currently, the company manufactures its own carrying case for the cameras at the following unit costs when 9,000 cases are manufactured each year: Direct materials $2.00 Direct labor $2.00 Variable overhead $1.00 Fixed overhead $1.00 Another manufacturer has offered to supply Quinton with the case at a cost of $6.00 each. If Quinton accepts the offer, what will be the short-term impact on net income. Relevant costs to make the case themselves = $ 5 Relevant costs to buy the case 6 Incremental Net Cost per Case to Buy (1) X number cases each year X 9,000 cases Decrease in net income ($9,000) Since we were not told otherwise, the fixed costs per case would not got away if we outsourced. Therefore, fixed costs of $1.00 per case are not relevant to the decision.
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3. A particular product line is most likely to be dropped when: When a product line is dropped, the company’s overall CM will go down. If overall FC do not go down by more than the decrease in CM, then overall profits will decrease. So, if overall FC do go down by more than the decrease in the CM, then overall profits will increase.
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