Exam 17: Activity Resource Usage Model and Tactical Decision Making

Cellestial Manufacturing Company produces Products A1, B2, C3, and D4 through a joint process. The joint costs amount to $200,000. If Frocessed Further Sales Value Additional Product Units Produced at Split-Off Costs Sales Value A1 3,000 \ 10,000 \ 2,500 \ 15,000 B2 5,000 30,000 3,000 35,000 4,000 20,000 4,000 25,000 4 6,000 40,000 6,000 45,000 Which product(s) should be sold at split-off to maximize profits in the short run?

What are relevant costs? How do they relate to decision making?

Zildjian Corporation manufactures a single product with the following unit costs for 1,250 units: Direct materials \ 2,300 Direct labor 960 Factory overhead (30\% variable ) 1,800 Selling expenses ( 50\% variable) 900 Administrative expenses (10\% variable) 840 Total per unit \ 6,800 Recently, a company approached Zildjian Corporation about buying 100 units for $5,100 each. Currently, the models are sold to dealers for $7,900. Zildjian Corporation's capacity is sufficient to produce the extra 100 units. No additional selling expenses would be incurred on the special order. What is the profit earned by Zildjian Corporation on the original 1,250 units?

A __________ model is a set of procedures that, if followed, will lead to a decision.

In the activity resource model, flexible resources are

A sunk cost is irrelevant because it has no influence over future decisions, so it is depreciated.

Which of the following items would be classified as committed resources (long-term)?

The operations of Erin Corporation are divided into the Coral Division and the Cyan Division. Projections for the next year are as follows: Operating income for Erin Corporation as a whole if the Cyan Division were dropped would be:

The cost of acquiring activity capacity is(are)

The following information relates to a product produced by Malkovich Company: Direct materials \ 24 Direct labor 15 Variable overhead 30 Fixed overhead Unit cost \ 87 Fixed selling costs are $500,000 per year, and variable selling costs are $12 per unit sold. Although production capacity is 600,000 units per year, the company expects to produce only 400,000 units next year. The product normally sells for $120 each. A customer has offered to buy 60,000 units for $90 each. If the firm produces the special order, the effect on income would be a

Future costs that differ across alternatives are referred to as:

Wannabee Company manufactures a product with the following costs per unit at the expected production level of 84,000 units: Direct materials \ 12 Direct labor 36 Variable manufacturing overhead 18 Fixed manufacturing overhead 24 The company has the capacity to produce 90,000 units. The product regularly sells for $120. A wholesaler has offered to pay $110 a unit for 7,500 units. If the special order is accepted, the effect on operating income would be a

Ecru Company manufactures 10,000 components per year. The manufacturing cost of the components was determined as follows: Direct materials \ 70,000 Direct labor 115,000 Variable manufacturing overhead 40,000 Fixed manufacturing overhead 60,000 Total \ 285,000 An outside supplier has offered to sell the component for $20. What is the effect on income if Ecru Company purchases the component from the outside supplier?

Concierge Industries manufactures 40,000 components per year. The manufacturing cost of the components was determined as follows: Direct materials \ 75,000 Direct labor 120,000 Variable manufacturing overhead 45,000 Fixed manufacturing overhead 60,000 Total \ 300,000 An outside supplier has offered to sell the component for $12.75. What is the effect on income if Concierge Industries purchases the component from the outside supplier?

Concierge Industries manufactures 40,000 components per year. The manufacturing cost of the components was determined as follows: Direct materials \ 75,000 Direct labor 120,000 Variable manufacturing overhead 45,000 Fixed manufacturing overhead 60,000 Total \ 300,000 An outside supplier has offered to sell the component for $12.75. Concierge Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component from the outside supplier. What is the effect on income if Concierge purchases the component from the outside supplier?

Which of the following costs is NOT relevant to a decision to sell a product at split-off or process the product further and then sell the product?

In order for costs or benefits to be relevant, what must be true?

Hobart Company produces speakers for PA systems. The speakers are sold to retail music stores for $30. Manufacturing and other costs are as follows: Variable costs per unit: Fixed costs per month: Direct materials \ 9.00 Factory overhead \ 120,000 Direct labor 4.50 Selling and admin. 60,000 Factory overhead 3.00 Total \ 180,000 Distribution 1.50 Total \ 18.00 The variable distribution costs are for transportation to the retail music stores. The current production and sales volume is 20,000 per year. Capacity is 25,000 units per year. A Memphis manufacturing firm has offered a one-year contract to supply speaker parts at a cost of $6.00 per unit. If Hobart Company accepts the offer, it will be able to reduce variable costs by 30 percent and rent unused space to an outside firm for $18,000 per year. All other information remains the same as the original data. What is the effect on profits if Hobart Company buys from the Memphis firm?

The steps in the tactical decision making process are: I.Comparing relevant costs and relating to strategic goals II.Identifying feasible alternatives III.Identifying costs and benefits and eliminating irrelevant costs IV.Selecting best alternative V.Defining the problem What is the proper sequence of steps

The following information pertains to Lilac Company's three products: $\begin{array}{lrrr}&A&B&C\\\text { Unit sales per month } & 1,800 & 2,800 & 1,600 \\\text { Selling price per unit } & \$ 3.00 & \$ 5.25 & \$ 3.50 \\\text { Variable costs per unit } & 2.00 & 4.00 & 3.80 \\\text { Unit contribution margin } & \$ 1.00 & \$ 1.25 & \$(0.30)\end{array}$ Assume that product C is discontinued and the space is used to produce B. Product B's production is increased to 4,000 units per month, but the selling price of all units of B is reduced to $5 per unit. Monthly profits will: