Learning Materials
Features
Discover
Chapter 25: Q7RQ (page 1406)
What are the two keys in short-term decision making?
The two keys in short-term decision making are:
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Explain why a segment with an operating loss can cause the company to have a decrease in total operating income if the segment is dropped.
You are trying to decide whether to trade in your inkjet printer for a more recent model. Your usage pattern will remain unchanged, but the old and new printers use different ink cartridges.
Indicate if the following items are relevant or irrelevant to your decision:
a. The price of the new printer
b. The price paid for the old printer
c. The trade-in value of the old printer
d. Paper cost
e. The difference between ink cartridges’ costs
Skiable Acres operates a Rocky Mountain ski resort. The company is planning its lift ticket pricing for the coming ski season. Investors would like to earn a 10% return on investment on the company’s \(270,000,000 of assets. The company primarily incurs fixed costs to groom the runs and operate the lifts. Skiable Acres projects fixed costs to be \)31,000,000 for the ski season. The resort serves about 725,000 skiers and snowboarders each season. Variable costs are about \(8 per guest. Currently, the resort has such a favorable reputation among skiers and snowboarders that it has some control over the lift ticket prices.
Requirements
1. Would Skiable Acres emphasize target pricing or cost-plus pricing? Why?
2. If other resorts in the area charge \)85 per day, what price should Skiable Acres charge?
Moore Company sells both designer and moderately priced fashion accessories. Top management is deciding which product line to emphasize. Accountants have provided the following data:
Per Item
Designer Moderately Priced
Average sales price \(185 \)87
Average variable costs 105 22
Average contribution margin 80 65
Average fixed costs (allocated) 20 10
Average operating income \(60 \)55
The Moore Company store in Grand Junction, Colorado, has 14,000 square feet of floor space. If Moore Company emphasizes moderately priced goods, it can display 840 items in the store. If Moore Company emphasizes designer wear, it can display only 560 designer items. These numbers are also the average monthly sales in units.
Prepare an analysis to show which product the company should emphasize.
Members of the board of directors of Security Team have received the following operating income data for the year ended March 31, 2018:
SECURITY CHECK Income Statement For the Year Ended May 31, 2018 |
Product Line |
Industrial Systems | Household Systems | Total |
Net Sales Revenue | \( 300,000 | \) 330,000 | \( 630,000 |
Cost of Goods Sold: | |||
Variable | 35,000 | 42,000 | 77,000 |
Fixed | 210,000 | 63,000 | 273,000 |
Total Cost of Goods Sold | 245,000 | 105,000 | 350,000 |
Gross Profit | 55,000 | 225,000 | 280,000 |
Selling and Administrative Expenses: | |||
Variable | 66,000 | 77,000 | 143,000 |
Fixed | 39,000 | 28,000 | 67,000 |
Total Selling and Administrative Expenses | 105,000 | 105,000 | 210,000 |
Operating Income (Loss) | \) (50,000) | \( 120,000 | \) 70,000 |
Members of the board are surprised that the industrial systems product line is losing money. They commission a study to determine whether the company should drop the line. Company accountants estimate that dropping industrial systems will decrease fixed cost of goods sold by \(81,000 and decrease fixed selling and administrative expenses by \)15,000.
Requirements
1. Prepare a differential analysis to show whether Security Team should drop the industrial systems product line.
2. Prepare contribution margin income statements to show Security Team’s total operating income under the two alternatives: (a) with the industrial systems line and (b) without the line. Compare the difference between the two alternatives’ income numbers to your answer to Requirement 1.
3. What have you learned from this comparison in Requirement 2?
What do you think about this solution?
We value your feedback to improve our textbook solutions.
Explanations 
Textbooks 
Exams 
GCSE 
IGCSE 
AS 
A Level 
International A Level 
University Admissions Tests 
Flashcards 
Vaia AI 
Notes 
Study Plans 
Study Sets 
Find a job 
Find a degree 
Student Deals 
Magazine 
Mobile App