Reference no: EM13943534

1. Gerald Boards produces two kinds of skateboards. Selected unit data for the two boards for the last quarter follow.

	Basco Boards			Shimano Boards
Production costs
Direct materials	$	25.10		$	38.20
Direct labor	$	31.10		$	53.20
Allocated overhead	$	15.55		$	20.20
Total units produced and sold		5,100			9,100
Total sales revenue	$	456,450		$	1,192,100

 Gerald allocates production overhead using activity-based costing. It allocates delivery expense and sales commissions, which amount to $59,500 per quarter, to the two products equally.

Required:

a. Compute the per-unit cost for each product.(Round your answers to 2 decimal places.)

b. Compute the profit for each product. Serious Safety Products currently outsources an electrical switch that is a component in its sprinkler systems. The switches are purchased for $16 each. The company is considering making the switches internally and has conducted a study to determine the costs involved. The costs below are projected annual production costs:

Unit-level material cost	$3
Unit-level labor cost	$2
Unit-level overhead	$1
Batch-level cost (9,000 units per batch)	$15,000
Product-level supervisory salaries	$42,500
Allocated facility-level costs	$30,000

 c. Assume that the company needs 18,000 of the switches, which would be produced in three batches. Assume also that the company will still be operating within the relevant range. If Serious Safety decides to make the parts under these conditions, the total relevant costs will be:

$210,500.

$195,500.

$180,500.

$165,500.

 d. Lindsay purchased a raffle ticket for $5. Just before the grand prize drawing, two people tried to buy her ticket. The first person offered $30, and another offered $65. What is Lindsay's opportunity cost of keeping the raffle ticket?

$60

$90

$65

$95

 e.  Stephenson Company is trying to decide which one of two contracts it will accept. The costs and revenues associated with each are listed below.

The equipment was purchased last year and has no resale value. Which of these amounts is relevant for the selection of one contract over another?

Contract revenue and labor costs

Contract revenue, labor costs and depreciation on equipment

Materials, consulting advice and allocated overhead

The cost of consulting advice and allocated overhead

f. Jason is trying to decide which one of two job offers he will accept. Several items are presented below:

g. Which of the above items would be considered relevant costs?

None of these.

(2), (4)

(1), (3), (5)

(5)

h. Which costs are relevant for equipment replacement decisions?

All of these.

Product-level costs

Batch-level costs

Unit-level costs

 i. The Clear Music Company produces and sells a desktop speaker for $210. The company has the capacity to produce 61,000 speakers each period. At capacity, the costs assigned to each unit are as follows:

Unit level costs	$100
Product level costs	$26
Facility level costs	$16

The company has received a special order for 12,000 speakers. If this order is accepted, the company will have to spend $21,000 on additional costs. Assuming that no sales to regular customers will be lost if the order is accepted, at what selling price will the company be indifferent between accepting and rejecting the special order? (Do not round your intermediate calculations. Round your final answer to two decimal places.)

$101.75

$112.25

$151.75

$109.25

j. Bates Company plans to add a new item to its line of consumer product offerings. Two possible products are under consideration. Each unit of Product A costs $6 to produce and has a contribution margin of $3 while each unit of Product B costs $12 and has a contribution margin of $4. What is the differential revenue for this decision?

$1

$9

$7

$6

k. QRC Company is trying to decide which one of two alternatives it will accept. The costs and revenues associated with each alternative are listed below:

l. What is the differential revenue for this decision?

$62,500

$12,500

$25,000

$75,000