Exam 7: Incremental Analysis for Short-Term Decision Making

Hanson Corp. produces three products, and is currently facing a labor shortage - only 3,000 hours are available this month. The selling price, costs, labor requirements, and demand of the three products are as follows: a. In what order should Hanson prioritize production of the products? b. How many of each product should be sold during the labor shortage to maximize profit? c. What is the total contribution margin if Hanson prioritizes production according to its limited resources?

The final step in the decision making process is to:

Power Inc. has two divisions, Windsor and Ridge. Following is the income statement for the past month: What would Power's profit margin be if the Windsor division was dropped and all fixed costs are unavoidable?

Dundee Company currently produces three products from a joint process. The joint process has total costs of $250,000 per month. All three products, A, B & C, are immediately saleable as they come out of the joint process. Alternatively, any of the products could continue on with additional processing and be sold as a more complete product. The following information is available: Which of the products should be sold after further processing?

You wish to take an Excel course. You may enroll at one within your school or you may take a community class at the local library. You've gathered the following information to aid in your decision-making process. Consider the transportation cost. At what point would you be indifferent between alternatives?

Which of the following types of decisions involves deciding whether to perform a particular activity in-house or purchase it from an outside supplier?

A ______________ is one that can be attributed to a specific segment of the business.

Spencer Inc. manufactures a product that costs $36 per unit plus $32,000 in fixed costs each month. Spencer currently sells 1,000 of these units per month for $80 each. If Spencer leased a machine for $8,000 a month, it could add features to the product that would allow it to sell for $120 each. It would cost an additional $12 per unit to add these features. How much would Spencer's profit be affected if it leased the machine and added features to its product?

Franklin, Inc. has two divisions, Seward and Charles. Following is the income statement for the previous year: Of the total fixed costs, $300,000 are common fixed costs that are allocated equally between the divisions. What would Franklin's profit margin be if Charles were dropped?

Moss, Inc. currently processes payroll in its accounting department, which costs the following per month: Moss could use a payroll processing firm instead, which would cost $1,350 per month, but the firm would provide all supplies. If Moss used the outside firm, the accountants who currently process payroll would be reassigned to other accounting tasks. How much would monthly costs be affected if Moss switched to the payroll processing firm?

Shirley Inc. has three divisions, King, West and Gold. Following is the income statement for the previous year: Of the fixed costs, $300,000 is for corporate costs and is allocated equally to the three divisions. a. How much does Gold Division have in direct fixed costs? b. What is Gold Division's segment margin? c. What would Shirley's profit margin be if Gold Division were dropped?

The segment margin is the contribution margin of a particular segment

The quality of the goods in question is irrelevant to a make-or-buy decision

Franklin, Inc. has two divisions, Seward and Charles. Following is the income statement for the previous year: Of the total fixed costs, $300,000 are common fixed costs that are allocated equally between the divisions. How much did the Charles division incur in direct fixed costs?

Franklin, Inc. has two divisions, Seward and Charles. Following is the income statement for the previous year: Of the total fixed costs, $300,000 are common fixed costs that are allocated equally between the divisions. What is Seward's segment margin?

Underwood, Inc. manufactures two products. It currently has 2,000 hours of direct labor and 1,000 hours of machine time available per month. The table below lists the contribution margin, labor and machine time requirements, and demand for each product. What is the contribution margin per machine hour for Product A?

Which of the following is not a step in the managerial decision-making process?

Pasadena Corp. produces three products, and currently has a shortage of machine hours since one of its two machines is down - only 360 hours are available this month. The selling price, costs, and labor requirements of the three products are as follows: a. What is the contribution margin per unit for each product? b. What is the contribution margin per machine hour for each product? c. Assume Pasadena has unlimited demand for each product. Which product should Pasadena focus on producing?

Which of the following is not another term for relevant costs?

Hamilton, Inc. has two divisions, Parker and Blaine. Following is the income statement for the previous year: Of the total fixed costs, $600,000 are common fixed costs that are allocated equally between the divisions. What is Parker's segment margin?