Exam 4: Relevant Information for Decision Making

Which of the following statements about outsourcing is true? I. Outsourcing is the process of finding external suppliers II. Outsourcing is not very common in today's business world III. Outsourcing is used for manufactured goods, but not for services

A not-for-profit organization provides meals and medicine for homeless people. Because of funding cutbacks, one of the two services must be curtailed. To make this choice, managers are likely to consider all of the following except:

If a service organization is at capacity, it would only accept a special order for service if it was priced at or above the price that regular customers pay for the service.

Managers should discontinue a business if which of the following is less than the sum of relevant fixed costs and opportunity costs?

Calgary Corporation is closing one of its divisions. Operating data on this division follows: Sales \ 80,000 Variable costs 40,000 Overhead 40,000 Overhead consists of $30,000 in salary and $10,000 for rent and insurance. The salary is for the chief engineer, who will continue to work for Calgary even if the division is closed. Rent and insurance that will cease if the division is closed is an:

If financial statement data are used to evaluate a decision to discontinue a business:

A company will only incur an opportunity cost for a special order when:

Product quality is seldom a factor in make or buy decisions.

If an organization cannot deliver goods or services quickly because of a constraint, managers might relax that constraint to:

Factors that affect information quality in nonroutine operating decisions include: I. Uncertainties II. Timeliness III. Analysis technique assumptions IV. Overall cost structure

In a special order decision, which of the following is most likely a qualitative factor that managers should consider?

In applying a relevant quantitative analysis technique to a nonroutine operating decision, managers must:

Managers should always emphasize products with the highest total contribution margin.

In general, a company should outsource if the cost to buy is:

A manufacturer operating with excess capacity has been asked to fill a special order at $7.25 per unit. The regular price is $10 per unit. No other use of the currently idle capacity can be found. The manufacturer's usual variable costs per unit are $3.50 for direct materials, $2.00 for direct labour, $1.00 for variable overhead, and $0.50 for sales commission. No sales commission would be paid on this special order. The average fixed overhead cost per unit is $0.25. Under the general decision rule, the minimum price per unit for this special order is:

If idle capacity exists, a special order must cover its full cost to be profitable.

A company should always promote the product:

Managers may choose to keep an unprofitable product if dropping it would adversely affect the sales of profitable products.

As long as managers can identify relevant information for making nonroutine operating decisions, they will make the best decision.

In an outsourcing decision, the general rule managers should follow is to: