Problem 1 - Derauf has prepared the following list of statements about decision making and incremental analysis. Identify each statement as true or false. If false, indicate how to correct the statement.
1. The first step in management's decision-making process is, "Determine and evaluate possible courses of action."
2. The final step in management's decision-making process is to actually make the decision.
3. Accounting's contribution to management's decision-making process occurs primarily in evaluating possible courses of action and in reviewing the results.
4. In making business decisions, management, ordinarily considers only financial information because it is objectively determined.
5. Decisions involve a choice among alternative courses of action.
6. The process used to identify the financial data that change under alternative courses of action is called incremental analysis.
7. Costs that are the same under all alternative courses of action sometimes affect the decision.
8. When using incremental analysis, some costs will always change under alternative course of action, but revenues will not.
9. Variable costs will change under alternative courses of action, but fixed costs will not.
Problem 2 - Innova Corporation makes a commercial-grade cooking griddle. The following information is available for Innova Corporation's anticipated annual volume of 30,000 units.
|
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Per Unit
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Total
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|
Direct materials
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$17
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|
|
Direct labor
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$ 8
|
|
|
Variable manufacturing overhead
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$11
|
|
|
Fixed manufacturing overhead
|
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$360,000
|
|
Variable selling and administrative expenses
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$ 4
|
|
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Fixed selling and administrative expenses
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$150,000
|
The company uses a 40% markup percentage on total cost.
(a) Compute the total cost per unit.
(b) Compute the target selling price.