Question

1. _____ are referred to as strictly variable costs.

a.Scarce resources

b.Indirect resources

c.Implicit resources

d.Committed resources

e.Flexible resources

2. Victor's Detailing customers would be willing to pay $57 per detail. The company requires a 40% profit on each job.

The average job would cost $30.
Victor's uses target costing. Victor's Detailing should:

a.sell their services at the price customers are willing to pay.

b.sell their business.

c.find a way to reduce costs.

d.ask their customers to pay more.

e.reduce their required percentage to stay in business.

3. The limitations faced by firms in terms of resources and product demand are called:

a.advantages.

b.constraints.

c.contribution factors.

d.exceptions.

e.cost enhancers.

4. Qualitative factors that should be considered when evaluating a make-or-buy decision are

a.whether the outside supplier can provide the product when it is needed.

b.whether the outside supplier can provide the needed quantities.

c.the quality of the outside supplier's product.

d.All of these choices are correct.

5. Information about three joint products follows:

	X	Y	Z
Anticipated production	12,000 lbs.	8,000 lbs.	7,000 lbs.
Selling price/lb. at split-off	$16	$26	$48
Additional processing costs/lb. after split-off
(all variable)	$8	$20	$20
Selling price/lb. after further processing	$20	$40	$70

The cost of the joint process is $140,000. Which of the joint products should be processed further?

a.Z.

b.X.

c.Y.

d.Both X and Y.

6. Bergamit Company manufactures veterinary products. One joint process involves refining a chemical (dactylyte) into two chemicals − dac and tyl. One batch of 10,000 gallons of dactylyte can be converted to 4,000 gallons of dac and 6,000 gallons of tyl at a total joint processing cost of $15,000. At the split-off point, dac can be sold for $5 per gallon and tyl can be sold for $7 per gallon. Bergamit has just learned of a new process to convert dac into prodac. The new process costs $5,000 and yields 2,500 gallons of prodac for every 3,000 gallons of dac. Prodac sells for $6 per gallon.

What is Bergamit's profit from refining one batch of dactylyte if both dac and tyl are sold at the split-off point?

a.$47,000

b.$25,000

c.$36,000

d.$17,000

e.$52,000

Answer 1

	First 4 questions have been answered
1	Flexible resources are referred to as strictly variable costs.
	e.Flexible resources (Flexible resources depends directly on the production and vary with demand.)
2	Target Costing = Selling Price – Profit Margin
	Target Profit Margin = 40% of 57 = $22.8 per unit
	Target Cost = Selling Price – Profit Margin ($57 – $22.8)
	Target Cost = $34.2 per unit, which is more than what they actually incur i.e. $30 per unit. So they are still earning profit at current sellimg price.
	So answer is option - a.sell their services at the price customers are willing to pay.
3	The limitations faced in terms of resources and product demand are constraints for the firm. So the answer is option (b).
4	All of the given choices should be considered when evaluating a make-or-buy decision. So the answer would be (d).