Exam 10: Relevant Information for Decision Making

Heavenly Hair Corporation makes and sells brushes and combs. It can sell all of either product it can make. The following data are pertinent to each respective product: Total fixed overhead is $380,000. The company has 40,000 machine hours available for production. What sales mix will maximize profits?

In linear programming, a surplus variable represents the unused portion of a resource.

If a cost is irrelevant to a decision, the cost could not be

A linear programming model must

The potential rental value of space used for production activities

The term incremental cost refers to

A cost is sunk if it

Most ____ are relevant to decisions to acquire capacity, but not to short-run decisions involving the use of that capacity.

Edmond Corporation has been manufacturing 5,000 units of Part 10541, which is used in the manufacture of one of its products. At this level of production, the cost per unit of manufacturing Part 10541 is as follows: Arcadia Company has offered to sell Edmond 5,000 units of Part 10541 for $19 a unit. Edmond has determined that it could use the facilities currently used to manufacture Part 10541 to manufacture Part RAC and generate an operating profit of $4,000. Edmond has also determined that two-thirds of the fixed overhead applied will continue even if Part 10541 is purchased from Arcadia. To determine whether to accept Arcadia's offer, the net relevant costs to make are

Green Industries has two sales territories-North and South. Financial information for the two territories is presented below: Because the company is in a start-up stage, corporate management feels that the North sales territory is creating too much of a cash drain on the company and it should be eliminated. If the North territory is discontinued, one sales manager (whose salary is $40,000 per year) will be relocated to the South territory. By how much would Green's income change if the North territory is eliminated?

The feasible region for an LP solution is

In a make or buy decision, the reliability of a potential supplier is

Nature's Grain Corporation Nature's Grain Corporation grows grain in rural areas of the South. The corporation's costs per bushel of grain (based on an average yield of 130 bushels per acre) follow: Nature's Grain Corporation defines direct material costs as seed, fertilizer, water, and other chemicals. The variable overhead costs represent maintenance and repair costs of machinery. The fixed overhead costs are completely comprised of depreciation expense on machinery and real estate taxes. Refer to Nature's Grain Corporation. Assume that the current date is March 15. On this date, Nature's Grain Corporation must make a decision as to whether it is financially better off to plant a certain farm to grain, leave the land idle (no income is derived from idle land), or rent the land to another farmer for $50 per acre. Grain prices have been severely depressed in recent years and Nature's Grain Corporation's best guess is that grain prices will be around $2.00 per bushel at the time the crop is ready for harvest. What should the company do? Show calculations.

Which of the following costs would be relevant in short-term decision making?

Pittman and Associates, CPA's provides two types of services: audit and tax. All company personnel can perform either service. In efforts to market its services, the company relies on radio and billboards for advertising. Information on the company's projected operations for the coming year follows:

Anderson Company uses 10,000 units of a part in its production process. The costs to make a part are: direct material, $12; direct labor, $25; variable overhead, $13; and applied fixed overhead, $30. Anderson has received a quote of $55 from a potential supplier for this part. If Anderson buys the part, 70 percent of the applied fixed overhead would continue. Anderson Company would be better off by

Memory Division of Missing Byte, Inc. The Memory Division of Missing Byte, Inc. produces a high-quality computer chip. Unit production costs (based on capacity production of 100,000 units per year) follow: Refer to Memory Division of Missing Byte, Inc. Assume, for this question only, that the Memory Division is presently operating at a level of 80,000 chips per year. Accepting a "special order" on 2,000 chips at $88 will

A linear programming problem can have

In setting compensation structures, fixed salary expense is normally not considered.

Phoenix Corporation makes and sells the "Desert Icon", a wall hanging depicting a magical cactus plant. The Desert Icons are sold at specialty shops for $50 each. The capacity of the plant is 15,000 Icons. Costs to manufacture and sell each wall hanging are as follows: Phoenix Corporation has been approached by a Oklahoma company about purchasing 2,500 Desert Icons. The company is currently making and selling 15,000 per year. The Oklahoma company wants to attach its own state label, which increases costs by $.50 each. No selling expenses would be incurred on this order. The corporation believes that it must make an additional $1 on each Desert Icon to accept this offer.