Exam 6: Decision Making in the Short Term

The production of two products has the same selling prices per unit. If total fixed costs will be $5,000 for product A and $4,500 for product B, what factors are relevant in determining which of the two products to produce and sell? a. Selling and variable costs per unit, and the fixed cost savings. B) Variable costs per unit and total fixed costs. C) Total variable and fixed costs and total sales revenue D) .Variable costs per unit and the fixed cost savings

When demand is high and a resource is in short supply, the contribution margin per unit of the resource from its best possible use should exceed that forgone by putting it to the next best use.

Quantifying the longer-term implications of short-term actions is relatively simple.

When faced with a situation where supply is limited for multiple resources managers use linear and integer programming to evaluate decision options.

A differential approach is an approach for framing and solving decisions that involves expessing the benefits and costs of the various decision options relative to one of the options.

Using the gross approach to choose the best decision option is preferable to the incremental method when the decision option involves many costs and benefits.

Which of the following statements is not true? a. Quantifying longer-term implications of short-term actions is relatively simple. B) It is important to consider longer-term implications of short term decisions because of potential tradeoffs between short-term and long-term interests. C) Many managers follow a "peel the onion" approach to assessing decision effects, first by estimating the short-term effects, and then expanding the range of considered factors. D) For longer-term actions, in many cases, qualitative assessments are the only ones possible, and large estimations errors accompany such assessments. E) All of the above statements are true.

Which of the following is in the context of a short-term decision? a. Special order. B) Product promotion. C) Product mix. D) A and B only. E) A, B and C)

When picking the best decision option from among a set of available options, we could consider controllable costs and benefits or relevant costs and benefits.

The general rule to apply to maximize profit when capacity is in short supply is: a. Minimize the contribution margin per unit of capacity. B) Maximize the margin of safety per unit of capacity. C) Maximize the contribution margin per unit of capacity. D) Minimize the margin of safety per unit of capacity. E) Maximize the unit contribution margin.

The Jackson Company produces 2 different products, each of which has unlimited demand. If there are 4,000 total available labor hours, and the company desires to maximize its contribution margin, how many units of each product should be produced?

When management must decide whether to offer special promotions in order to reduce excess inventory, which of the following is not relevant?

Price gouging occurs when a firm exploits temporary excess demand to raise prices to unreasonable levels.

When capacity is limited, which of the following are alternative courses of action to consider? a. Produce the items with the largest contribution margin per unit of capacity. B) Purchase some components from outside suppliers. C) Produce the items with the largest selling price to maximize revenue. D) A and B only. E) A, B and C)

In the short term, businesses can alter capacity that they have when dealing with fluctuations in demand.

In a make-or-buy decision relevant costs would include all of the following except:

Our ultimate decision will differ when we use incremental analysis versus construct a contribution margin statement for each option.

When making a decision regarding a special order management must consider:

An approach that includes controllable and non-controllable costs and benefits to construct a contribution margin statement for each decision option is referred to as a incremental product approach.

Quantifying the longer-term implications of short-term actions is difficult. Consequently: a. It is impossible to make an informed decision. B) Frequently, only qualitative assessments are possible. C) Long-term implications should be ignored in the decision-making process. D) A and B only. E) A, B, and C are consequences.