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Best Profit Maximization Strategies

In a manufacturing environment, the best short-term profit-maximizing approach is to maximize contribution per unit times the number of units sold. Relevant costs in make-or-buy decisions include variable manufacturing costs and avoidable fixed costs, while fixed overhead that will continue regardless of the decision is considered irrelevant. The document emphasizes the importance of understanding marginal costing and relevant costs for effective decision-making.

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Flordeliza Vidad
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21 views2 pages

Best Profit Maximization Strategies

In a manufacturing environment, the best short-term profit-maximizing approach is to maximize contribution per unit times the number of units sold. Relevant costs in make-or-buy decisions include variable manufacturing costs and avoidable fixed costs, while fixed overhead that will continue regardless of the decision is considered irrelevant. The document emphasizes the importance of understanding marginal costing and relevant costs for effective decision-making.

Uploaded by

Flordeliza Vidad
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

6.

In a manufacturing environment, the best short-term profit-maximizing approach is to


[Link] unit gross profit times the number the units sold.
[Link] variable costs per unit times the number of units produced.
[Link] fixed overhead cost per unit produced at full capacity.
[Link] contribution per unit times the number of units sold.
(cma)
6.
D
?
The best short-term profit maximizing approach.

The better way to predict profit is by using the marginal costing approach. In this approach, profit is determined as contribution
margin less fixed costs and expenses. This means that a peso increase in contribution margin is a peso increase in
profit. Considering that fixed costs are constant, to maximize profit means maximizing contribution margin per total and per
[Link] or buy
[Link] the costs relevant to a make-or-buy decision, include variable manufacturing costs as well as
[Link] costs.
C. Avoidable fixed cost.
[Link] depreciation.
D. Real estate taxes.
(rpcp
a)
7.
C
?
The choice that isalso included as a relevant cost in the make
-
or
-
buy decision.Relevant costs include those that change from one alternative to another
(differential costs) and those that pertain to the future (future costs). The following relevant costs are considered in the make-or-buy
decisions:

Variable costs of production

Variable costs of administration and selling

Avoidable fixed costs and expenses

Opportunity costs such as:

Possible rental income when production facilities a


re released, deduct from
the cost to buy.

Possible contribution margin from the production of new product(s) when


facilities are released, deduct from the cost to buy.

Savings in the overall production costs if a part is not produced and instead
is bou
ght from an outside supplier, deduct from the cost to buy.

Lost contribution margin from regular sales due to the acceptance of the
special sales order, add to the cost to buy.
Choices “a”, “b”, and “d” are incorrect because all of them are unavoidable
fixed costs.
[Link] determining whether to manufacture a part or buy it from an outside vendor, a cost that is irrelevant to the short-run
decision is
[Link] labor.
[Link] overhead.
[Link] overhead that will be avoided if the part is bought from an outside vendor.
[Link] overhead that will continue even if the part is bought from an outside vendor.
(aicpa)
8.D
?
A cost that is irrelevant in short-term decision.
Irrelevant costs are past cost and do not change from alternative to another. Choice
-
letter “d” is correct because fixed overhead is constant, will continue
regardless of decision made, it is therefore irrelevant. Choice
-
letters “a”, “b”. and
“c” are relevant costs because they are differential costs and change from
alterna
tive to anothe

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