1. Sales for January are budgeted at 50,000 units, and the company expects sales
ID: 2501939 • Letter: 1
Question
1. Sales for January are budgeted at 50,000 units, and the company expects sales to increase 4% each month. How many units will need to be purchased in February if the company's policy is to keep ending inventory each month at 10,000 units?
52,000 units
54,000 units
62,000 units
None of these answers is correct.
Alternative 2 because it has a higher profit.
Alternative 2 because it has the same product- & facility-level costs.
Alternative 1 because it has fewer unit-level costs.
Alternative 1 because it has a higher profit.
3. For purposes of decision making, avoidable costs are costs that:
were incurred in the past.
will not be incurred in the future, regardless of the alternative chosen.
differ between alternatives.
None of these.
4. Which of the following is not a possible alternate term for costs that can be eliminated by taking a specified course of action?
Avoidable costs
Opportunity costs
Relevant costs
Differential costs
Explanation / Answer
1) Answer = 52,000 Units.
Since the ending inventory should be 10,000 units each month, the units to be purchased every month should equal the budgeted sale in units, so that there is no increase of decrease in ending inventory, which is maintained at 10000 units.
For February the budgeted sale = 50000 * 1.04 = 52,000 units Closing and opening inventory being the same, the purchase should be for 52,000 units.
2) The Contribution of the Alternatives to the Facility level costs is the deciding factor
For Alt 1 = 100000- 55000 = 45,000
For Alt 2 = 1250000- 70000 = 55,000
Alternative 2 should be selected because it is giving higher margin after providing for unit level, batch level and product level costs.
3) Avoidable costs are - Costs that differ between alternatives.
4) Opportunity cost
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