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You are a bake who makes both bagels and donuts.  If the price of donuts increases, which of the following scenarios is most likely to occur?

Part N19 is used by Malouf Corporation to make one of its products. A total of 7,000 units of this part are produced and used every year. The company’s Accounting Department reports the following costs of producing the part at this level of activity:   Problem Info   Per Unit Direct materials $2.20 Direct labor $8.50 Variable manufacturing overhead $1.30 Supervisor’s salary $5.80 Depreciation of special equipment $7.20 Allocated general overhead $4.60   An outside supplier has offered to make the part and sell it to the company for $24.50 each. If this offer is accepted, the supervisor’s salary and all of the variable costs, including the direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the part were purchased instead of produced internally. In addition, the space used to make part N19 could be used to make more of one of the company’s other products, generating an additional segment margin of $25,000 per year for that product. What would be the impact on the company’s overall net operating income of buying part N19 from the outside supplier?

Marst Corporation’s budgeted production in units over the next three months is given below:   Problem Info   January February March Budgeted sales (in units) 70,000 65,000 80,000   The company wants to have units on hand at the end of each month equal to 30% of the following month’s production needs. The company is expected to have 21,000 units on hand on January 1. Budgeted production for February should be:

Kozloff Cheesy Wedding Company makes very elaborate wedding cakes to order. The owner of the company has provided the following data concerning the activity rates in its activity-based costing system: Problem Info Activity Cost Pools Activity Rate Size-related $1.16 per guest Complexity-related $33.47 per tier Order-related $65.95 per order The measure of activity for the size-related activity cost pool is the number of planned guests at the wedding reception. The greater the number of guests, the larger the cake. The measure of complexity is the number of tiers in the cake. The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately. Data concerning two recent orders appear below: Problem Info   Winterhalter Wedding Manliguis Wedding Number of reception guests 45 183 Number of tiers on the cake 4 5 Cost of purchased decorations for cake $19.65 $61.84 Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down, what amount would the company have to charge for the Winterhalter wedding cake to just break even?

Kozloff Cheesy Wedding Company makes very elaborate wedding cakes to order. The owner of the company has provided the following data concerning the activity rates in its activity-based costing system: Problem Info Activity Cost Pools Activity Rate Size-related $1.16 per guest Complexity-related $33.47 per tier Order-related $65.95 per order The measure of activity for the size-related activity cost pool is the number of planned guests at the wedding reception. The greater the number of guests, the larger the cake. The measure of complexity is the number of tiers in the cake. The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately. Data concerning two recent orders appear below: Problem Info   Winterhalter Wedding Manliguis Wedding Number of reception guests 45 183 Number of tiers on the cake 4 5 Cost of purchased decorations for cake $19.65 $61.84 Suppose that the company decides that the present activity-based costing system is too complex and that all costs (except for the costs of purchased decorations) should be allocated on the basis of the number of guests. In that event, what would you expect to happen to the costs of cakes?

The LaGrange Corporation had the following budgeted sales for the first half of the current year: Problem Info     Cash Sales   Credit Sales January $ 70,000 $ 340,000 February $ 50,000 $ 190,000 March $ 40,000 $ 135,000 April $ 35,000 $ 120,000 May $ 45,000 $ 160,000 June $ 40,000 $ 140,000   The company is in the process of preparing a cash budget and must determine the expected cash collections by month. To this end, the following information has been assembled: Collections on sales: 60% in month of sale 30% in month following sale 10% in second month following sale The accounts receivable balance on January 1 of the current year was $70,000, of which $50,000 represents uncollected December sales and $20,000 represents uncollected November sales. The total cash collected during January by LaGrange Corporation would be:

Your Grandma can’t believe you are going to pay $25,000 for a new car.  She thinks a vehicle should only be $5,000 because that is what she paid for her first car.  Behavioral economists would say she is using __________________ to determine value.

Matt Company uses activity-based costing. The company has three products: A, B and C. The annual production and sales of Product A is 8,000 units, Product B is 6,000 units and Product C is 4,000 units. There are three activity cost pools, with total cost and total activity as follows: Problem Info       Total Activity   Activity Cost Pool Total Cost Product A Product B Product C Activity 1 $20,000 100 400 500 Activity 2 $37,000 800 200 1,000 Activity 3 $91,200 800 3,000 3,800 The activity-based costing cost per unit of Product A is

Sardi Inc. is considering whether to continue to make a component or to buy it from an outside supplier. The company uses 17,000 of the components each year. The unit product cost of the component according to the company’s cost accounting system is given as follows: Problem Info Item Amount   Direct materials $ 8.20   Direct labor   8.30   Variable manufacturing overhead   1.20   Fixed manufacturing overhead   4.30   Unit product cost $ 22.00   Assume that direct labor is a variable cost. Of the fixed manufacturing overhead, 70% is avoidable if the component were bought from the outside supplier. In addition, making the component uses 2 minutes on the machine that is the company’s current constraint. If the component were bought, time would be freed up for use on another product that requires 4 minutes on this machine and that has a contribution margin of $7.00 per unit. When deciding whether to make or buy the component, what cost of making the component should be compared to the price of buying the component?

The Cook Corporation has two divisions–East and West. The divisions have the following revenues and expenses:   Problem Info   East West   Sales $ 500,000   $ 550,000   Variable costs   200,000     275,000   Traceable fixed costs   150,000     180,000   Allocated common corporate costs   135,000     170,000   Net operating income (loss) $ 15,000   $ (75,000 )   The management of Cook is considering the elimination of the West Division. If the West Division were eliminated, its traceable fixed costs could be avoided. Total common corporate costs would be unaffected by this decision. Given these data, the elimination of the West Division would result in an overall company net operating income (loss) of: