1. The vice president of the manufacturing company for which you are the accountant has suggested to the president that all prices should be established on the basis of direct costing.
2. Assume that the company where you are employed has a substantial amount of unused plant capacity. A foreign company has offered to purchase a large quantity of your company's product, but at a price of 12 percent less than the product's normal selling price. What types of information are needed to arrive at a decision about whether to accept the order?
3. Suppose that your company is considering the purchase of a new machine for use in its production process. The cost of the machine is $295,000. If the purchase is made, an old machine currently in use will be scrapped. It has no net salvage value because its removal cost is equal to its gross salvage amount. The old machine has a book value of $150,000, and management is reluctant to take the loss that would result if this machine is scrapped. Discuss the types of information that management would need to make a decision about purchasing the new asset. Give special attention to the problem of the old asset's book value.
4. Suppose that your company has been manufacturing a part used in its finished product. The total manufacturing cost of the part is $35. An outside supplier has offered to provide the part for $32. Describe the measurable data that management would need in making a decision about whether to accept the supplier's offer.