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Cornerstones of Cost Management
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Chapter 7 / Exercise 10
Cornerstones of Cost Management
Hansen/Mowen
Expert Verified
12. (TCO 7) YXZ Company’s market for the Model 55 has changed significantly, and YXZ has had to drop  the price per unit from $275 to $135. There are some units in the work in process inventory that have costs  of $160 per unit associated with them. YXZ could sell these units in their current state for $100 each. It will  cost YXZ $10 per unit to complete these units so that they can be sold for $135 each. Which of the following is the amount of sunk costs in this problem? (Points : 4)   $160 per unit
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Cornerstones of Cost Management
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Chapter 7 / Exercise 10
Cornerstones of Cost Management
Hansen/Mowen
Expert Verified
$10 per unit $125 per unit $100 per unit 1. (TCO 3) Why is it necessary to use equivalent units in a process costing system? (Points : 20) 2. (TCO 7) Computer Boutique sells computer equipment and home office furniture. Currently, the  furniture product line takes up approximately 50% of the company's retail floor space. The president of  Computer Boutique is trying to decide whether the company should continue offering furniture or just  concentrate on computer equipment. If furniture is dropped, salaries and other direct fixed costs can be  avoided. In addition, sales of computer equipment can increase by 13%. Allocated fixed costs are  assigned based on relative sales.   Computer Home Office   Equipment Furniture       Total Sales $1,200,000 $800,000 $2,000,000 Less cost of  goods sold    700,000        500,000 Contribution  margin    500,000        300,000 Less direct fixed  costs:           Salaries 175,000 175,000           Other 60,000 60,000 Less allocated  fixed costs:           Rent 14,118 9,882           Insurance 3,529 2,471           Cleaning 4,117 2,883           President's  salary 76,470 53,350 130,000           Other         Total costs   340,292       380,708 Net Income $159,708 ($ 8,708) $151,000 Prepare an incremental analysis to determine the incremental effect on profit of discontinuing the furniture  line.         1,200,000          800,000           350,000 120,000       24,000 6,000 7,000  7,058              4,942          12,000           649,000         (Points : 25)
3. (TCO 4) The following monthly data are available for RedEx, which produces only one product that it  sells for $84 each. Its unit variable costs are $28 and its total fixed expenses are $64,960. Sales during  April totaled 1,600 units. (a) How much is the breakeven point in sales dollars for RedEx? (b) How many units must RedEx sell in order to earn a profit of $24,640? (c) A new employee suggests that RedEx sponsor a company softball team as a form of advertising. The  cost to sponsor the team is $1,792. How many more units must be sold to cover this cost?     (Points : 25)

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