Exam 6: Decision Making in the Short Term

The Southeast Company makes three products in one manufacturing facility. Data regarding these products are as follows: If there are only 2,000 machine hours available, how much is the profit per machine hour for product A?

Gecko Company is evaluating the use of a supplier versus making the wheels for its skateboards internally. The currently manufactured wheels have a variable unit cost of $2. Fixed costs are $16,000 per month, however, 25% can be eliminated if wheels are no longer produced. A supplier has offered to produce this part for $3 per wheel and can produce the 3,200 wheels for the 800 skateboards needed monthly. Should Gecko outsource wheels or make them internally? a. Outsource because the incremental cost savings is $12,800. B) Make the product because the incremental cost savings is $3,200. C) Outsource because the incremental cost savings is $800. D) Outsource because the incremental cost savings is $8,800.

Warner Company has some material that originally cost $41,500. The material has a scrap value of $21,600 as is, but if reworked at a cost of $4,600, it could be sold for $29,100. What would be the incremental effect on the company's overall profit if it is reworked? a. $17,000 decrease. B) $38,600 decrease. C) $2,900 increase. D) $24,500 increase.

Brand X Computers makes and sells computers. Each computer sells for $400. The following cost data per computer are based on a full capacity of 10,000 computers each period: Brand X is considering a special order for a sale of 2,500 computers to an overseas customer. The only selling costs that would be incurred for the order would be shipping charges of $15 per computer. Brand X is currently selling 7,500 computers through its regular orders. What should be the minimum selling price per computer in negotiating a price for the special order.

The decision of how much capacity to put in place is a long-term decision.

For a resource in short supply, the opportunity cost of the resource is positive.

Augusta Company manufactures stereo components. One of its most popular products is the LoudBoom Speaker. Data concerning this product are given below: The above per unit data are based on annual production of 3,000 units of the component. The company has received a special, one-time-only order for 200 units of the speaker. There would be no selling expenses on this special order and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company would not be affected by the order. Assuming that Augusta Company has excess capacity and can fill the order without any production disruptions, what is the minimum price per unit on the special order the company should charge?

Beach Surf Boards is making a decision on whether to add long boards as a new product line to complement its short boards. A recent analysis determined that the average long board can be sold for $300.00 with unit variable costs of $225. Fixed costs are currently $51,000 per month but would be increased to $69,000 if long boards are added. How much is incremental profit or (loss) if long boards are added and its sales volume is expected to be 250? a. $750 B) $18,750 C) ($32,250) D) ($50,250)

Capacity is the maximum volume of activity that a company can sustain with available:

When demand is high and a scarce resource is in short supply, a company should decide how much of each product to produce by ranking products by the contribution margin per unit of the product.

Relevant cost analysis involves focusing on only those costs and revenues that differ from a benchmark option.

Which consideration is most relevant for a startup manufacturing company? a. Short-term decisions regarding production. B) Implications that arise from people outside the firm such as customers, suppliers, and suppliers. C) Qualitative aspects of decisions. D) Decisions that cause profit to be highest in the short-run

The Pleasantville Company makes 20,000 units per year of a part used in production. The unit product cost is as follows: An outside supplier has offered to sell the company the same part at a cost of $9.00 per unit. If the company purchases the part only half of the fixed overhead would be avoided. How much of the unit product cost is relevant in making this decision?

With proper planning, businesses can match supply and demand exactly all the time.

An example of a decision that deals with excess supply is altering the product mix to focus on the most profitable ones.

Which of the following short-term decisions deal with excess capacity? a. Special order. B) Product mix. C) Make or buy. D) Increasing prices.

It is important for effective managers to consider the longer-term implications of short-term decisions because of potential tradeoffs between short-term and long-term interests.

Because quantitative analysis of different decision options is extremely important, it should be the only input into final decision.

The Southeast Company makes three products in one manufacturing facility. Data regarding these products are as follows: How many machine hours would be required to meet the demand for all products?

Spikes Company manufactures 5,000 high-end racing bicycles each period. Spikes has been making all the components for the bikes, but a supplier has approached Spikes with an offer to sell her bicycle seats at a price of $40. The cost per unit of manufacturing one bicycle seat is computed as follows: If the bicycle seats are purchased from the outside supplier, $1 per unit of the fixed manufacturing overhead costs can be avoided. If Spikes purchases the seats, the facility used to manufacture the seats would be rented for $20,000 per period. If Spikes chooses to purchase the bicycle seats, then the change in annual net operating income is an: a. $35,000 decrease. B) $35,000 increase. C) $5,000 decrease. D) $5,000 increase. E) $10,000 increase.