Exam 6: Relevant Information and Decision Making: Operational Decisions

The most recent income statement for the Parma Branch of the Dinero Company is presented below. Sales \ 57,000 Variable costs Contribution margin \ 25,500 Fixed costs: Avoidable 13,500 Unavoidable Operating income ) If the Parma Branch is eliminated and the space is rented for $24,000, operating income will be _____.

In deciding whether to add or drop new products, services, or departments, managers should emphasize the option that makes the greatest contribution possible to pay unavoidable costs.

Hitch 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 $55,000.Alternately, the facilities could be rented out at $68,000._____ is the opportunity cost to Hitch Company to make the part:

The disposal value of old equipment is relevant.

Another term for differential cost when one alternative includes all the costs of the other plus some additional costs

Purple Manufacturing Company produces three products using a joint process that accumulates $25,000 in joint costs.The products, A, B, and C, can be sold at split?off or processed further and then sold.The production level for each product is 10,000 units.The following unit information is also available: Separable Processing Sales Value Costs after Sales Value Product at Split-off Split-off at Completion \ 12 \ 9 \ 21 10 4 17 15 6 19 To maximize profits, Purple Manufacturing Company should process _____ further.

If a company has excess capacity, the most it would pay for buying a product that it currently makes would be the _____.

Gwynn Company is considering the replacement of a machine that is presently used to produce its single product.The following data are available: Old Machine Replacement Machine Original cost \ 210,000 \ 40,000 Useful life in years 12 7 Current age in years 5 0 Book value \ 65,000 - Disposal value now \ 30,000 - Disposal value in 7 years 0 0 Annual cash operating costs \ 10,000 \ 9,000 Required: Ignoring income taxes, prepare a cost comparison of all relevant items for the next seven years together.Indicate the best alternative for Gwynn Company.

Super Company manufactures two products, A and B.The following information was gathered: A B Selling price per unit \ 54.00 \ 66.00 Variable cost per unit 39.00 54.00 Total fixed costs \ 30,000 Assume Super Company could produce and sell any mix of products A and B at full capacity.If product A takes twice as long to manufacture as product B and only 120,000 hours of plant capacity are available, it is best for Super Company to produce _____.

_____ are a qualitative factor of a make-or-buy decision.

_____ costs are costs that continue even if an operation is halted.

Outsourcing is a make-or-buy decision for services.

When deciding whether to replace a product, service, or department, managers should choose the alternative that has the _____.

Birdflu Company manufactures a part for its production cycle.The costs per unit for 38,000 units of this part are as follows: Direct materials \3 Directlabor 5 Variable factory overhead 4 Fixed factory overhead 6 Total costs \1 6 The fixed factory overhead costs are unavoidable.Assuming no other use of their facilities, the highest price that Birdflu Company should be willing to pay for the part is _____.

Bee 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 \ 67,000 \ 54,000 Useful life in years 13 4 Current age in years 9 0 Book value \ 32,000 - Disposal value now \ 18,000 - Disposal value in 5 years \ 1,000 \ 6,000 Annual cash operating costs \ 9,000 \ 7,000 The _____ is irrelevant.

Copter Company currently produces 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 $190,000.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 Copter's lowest net cost for the part.

_____ is the item that restricts or constrains the production or sale of a product or service.

In deciding whether or not to add or delete a product or service, common costs are probably _____.

Birch Company manufactures a part for its production cycle.The costs per unit for 5,000 units of this part are as follows: Direct materials \3 Directlabor 5 Variable factory overhead 4 Fixed factory overhead 6 Total costs \1 6 The fixed factory overhead costs are unavoidable.Spalding Corporation has offered to sell 5,000 units of the same part to Birch Company for $15 a unit.Assuming no other use for the facilities, Birch Company should _____.

In retail sales, the limiting resource is often floor space.