Exam 6: Relevant Information and Decision Making: Operational Decisions

Costs of facilities and services that are shared by users

Qualitative factors do not affect a make-or-buy decision.

Meier Corporation produces two products, Pots and Pans.The following information is available for these two products: Pots Pans Selling price per unit \ 21.00 \ 15.00 Variable cost per unit 18.00 9.00 Total fixed costs \ 15,000 Total production capacity 10,000 units If at least 10,000 units of either Pots and/or Pans can be sold, it is best to produce _____

The costs of manufacturing joint products before the split?off point

A scarce resource limits the production or sale of a product or service.

Scarce resources include labor hours.

Bermuda Triangle Corporation has a joint process that produces three products: X, Y, and Z.Each product may be sold at split-off or processed further and then sold.Joint-processing costs for a year amount to $100,000.Other relevant data are as follows: Separable Processing Sales Value Costs after Sales Value Product at Split-off Split-off at Completion \ 128,000 \ 16,000 \ 160,000 50,000 26,000 76,000 25,600 20,000 40,000 To maximize profits, Bermuda Triangle Corporation should process _____ further.

Triple H Corporation has a joint process that produces two products: A and B.Each product may be sold at the split-off point or processed further and then sold.Joint-processing costs for a year amount to $25,000. Product A can be sold at the split-off point for $32,000.Alternately, product A can be processed further and sold for $40,000.Additional processing costs are $5,000. In deciding whether to sell product A at the split-off point or to process further, the _____ is not relevant.

Examples of joint products include chemicals, lumber, and flour.

San Bernardino Industries has three product lines, A, B, and C.The following information is available: A B C Sales \ 100,000 \ 90,000 \ 88,000 Variable costs \ 8,000 79,000 Contribution margin \ 24,000 \ 42,000 \ 9,000 Fixed costs: Avoidable 9,000 18,000 3,000 Unavoidable 9,000 9,400 Operating income \ 9,000 \ 15,000 \3 ,400) Assuming product line C is discontinued and the space formerly used to produce product C is rented for $15,000 per year, operating income will increase _____.

Phoenix Corporation has a joint process that produces three products: X, Y, and Z.Each product may be sold at split-off or processed further and then sold.Joint- processing costs for a year amount to $100,000.Other relevant data are as follows: Separable Processing Sales Value Costs after Sales Value Product at Split-off Split-off at Completion \ 128,000 \ 16,000 \ 160,000 50,000 26,000 76,000 25,600 20,000 40,000 Product Y _____.

The big obstacle to outsourcing has been the cost.

Stevens Company is considering replacing a machine that is presently used in the production of its product.The following data are available: Old Machine Replacement Machine Original cost \ 60,000 \ 35,000 Useful life in years 10 5 Current age in years 5 0 Book value \ 25,000 - Disposal value now \ 8,000 - Disposal value in 5 years 0 0 Annual cash operating costs \ 10,000 \ 4,000 The total relevant costs to consider if the old machine is kept are _____.

Lancaster Company currently produces 10,000 units of a key part at a total cost of $210,000.Variable costs are $170,000.Of the fixed cost, $10,000 relate specifically to this part.The remaining fixed costs are unavoidable. Another manufacturer has offered to supply the part for $190 per unit.The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of $25,000.Alternately, the facilities could be rented out at $55,000._____ is the opportunity cost to Lancaster Company for making the part.

Deuce Company currently produces 10,000 units of a key part at a total cost of $512,000.Variable costs are $300,000.Of the fixed cost, $140,000 relate specifically to this part.The remaining fixed costs are unavoidable. Another manufacturer has offered to supply the part for $48 per unit.The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of $30,000.Alternately, the facilities could be rented out at $60,000.Given all of these alternatives, _____ is Deuce Company's lowest net cost per unit for the part.

Wonderful Company is considering replacing a machine that is presently used in the production of its product.The following data are available: Old Machine Replacement Machine Original cost \ 333,000 \ 222,000 Useful life in years 6 5 Current age in years 1 0 Book value \ 198,000 - Disposal value now \ 132,000 - Disposal value in 5 years \ 10,000 \ 50,000 Annual cash operating costs \ 45,000 \ 34,000 The _____ is a sunk cost.

Yetmar Corporation produces two products, Pots and Pans.The following information is available for these two products: Pots Pans Selling price per unit \ 25.00 \ 15.00 Variable cost per unit 12.00 9.00 Total fixed costs \ 15,000 Total production capacity 10,000 units If a maximum of 7,000 units of each product can be sold, it would be best to _____.

Melissa Company produces and sells a product that has variable costs of $8 per unit and fixed costs of $240,000 per year._____ is the cost per unit if 20,000 units per year are produced and sold.

A key factor in a make-or-buy decision is _____.

LeBron Corporation manufactures two products, XX and YY.The following information was gathered: Selling price per unit \ 37.00 \ 26.00 Variable cost per unit 32.00 22.00 Total fixed costs \ 18,000 If LeBron Corporation could produce and sell either 10,000 units of XX or 5,000 units of YY at full capacity, it should produce and sell _____.