Knowledge Check Eva pays $3.000 per month to rent her house. She has a garage but is considering turning the space into a halr styling studio. She expects to earn $3.000 a month from this new business. Instead, she could sublease the garage space to a neighbor for $800 per month. As part of the terms of sublease, her neighbor will pay an additional $100 per month for utilities. All other costs are unaffected. Eva is now analyzing the costs and benefits of these alternatives Help Eva in her analysis by identifying the following items as either a relevant cost or irrelevant cost in the decision 1. The rentald on the house The e ings from the har styling studio ne cost of homenance The cost often 3. The y come from renting there Knowledge Check 01 Flexcore Inc. received a special order from one of its customers to sell its product for a price less than the normal selling price. If Flexcore does have idle production capacity necessary to fill this order, which of the following costs is likely to be irrelevant to the decision? SENI Fixed manufacturing overhead Direct materials Variable manufacturing overhead Dwect labor Knowledge Check 02 Fruit First produces and sells baskets of dried fruit for $20 each it receives a special order from Carol Costellano for 150 baskets at a special once of $16. The company incurs a variable cost of $11 and fixed manufacturing overhead of $6 per unit of fruit basket The company has excess copacity to fill this special ordet Should the special order be accepted? Yes NO Knowledge Check 01 - Delightful, Inc. manufactures and sells electric lamps. The company currently produces all parts in its Oregon factory. One of its vendors has offered to do the packaging for a price of $2 per unit. Delightful's management is now deciding whether to continue to package the product or hire the vendor to do it. What type of decision is the management making? Insourcing versus outsourcing decision Special-order decision Keep-or-drop decision Sell-or-process further decision Continue-or-discontinue decision Knowledge Check 02 Pinnacle, Inc. produces various computer parts. It produces a mouse model called AnyTouch. Pinnacle has always manufactured all parts internally, but is now considering buying the sensor for this mouse from an extemal supplier. SenseMore, Inc. It costs Pinnacle S10 197 Variable and $3 fixed costs) to produce the sensor in-house. Sense More is offering to sell the sensor at $9. Pinnacle can avoid all of its variable costs but none of its fixed costs by choosing to outsource. If Pinnacle decides to outsource. It can use its production facility to produce other parts. Which of the following are the relevant factors in this decision? Variable costs of producing the sensors Fixed costs of producing the sensors Revenues generated by selling Any Touch Cost of equipment used to manufacture the sensors
