Exam 4: Relevant Information for Decision Making

Which of the following is the best definition of a qualitative factor?

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. Assuming all overhead costs continue to be incurred even if the division closes, what will be the effect on overall company profits of closing the division?

The general decision rule for choosing products to emphasize, assuming no constraints and no relevant qualitative factors, is to emphasize products:

The following information is always relevant for short-term decisions:

String Corporation can manufacture 490,000 tennis rackets a year at a variable cost of $15 per racket and at the fixed costs of $500,000. String budgeted that it can sell 400,000 at $25 each. An additional order of 100,000 was received, but at a discount of 35% from the regular price. The relevant cost to String of the special order is:

A key aspect of special order decisions is being at least as well-off after the decision as before it.

Which of the following is a relevant qualitative factor in a special order decision?

Suppose a manager decides to sell a special order at the breakeven price. However, he is concerned that the organization could lose money if there are any errors in the analysis. About which factor should the manager be concerned?

Growe Company manufactures sewing machines and requires 30,000 units of a component that is used in the manufacturing process. If Growe buys the part from Zigler Brothers the plant will be idle. Of the fixed, 55% overhead will continue regardless of the decision. The cost to buy the part from Zigler is $46. The unit cost to make the part is: Direct materials \ 12 Direct labour 20 Variable overhead 12 Average fixed overhead 10 Total \ 54 Which alternative is more profitable and by what amount?

Because nonroutine operating decisions are so unique, managers cannot use a standard decision process for addressing them.

Make or buy decisions are sometimes known as outsourcing decisions.

In making a special order decision, which of the following is a relevant fixed cost?

The process for making nonroutine operating decisions:

To ensure high quality in outsourcing decisions, organizations typically negotiate contracts with:

The general rule for make or buy decisions is to choose the option with the lowest total cost.

Tieton Co. has two departments: Fabrication and Assembly. They produce 2 products. Product T needs 6 hours in fabrication and 6 hours in assembly. Product S needs 2 hours in fabrication and 4 hours in assembly. Fabrication has 24 hours available and Assembly 18. Total variable costs are $20 and $15 for T and S respectively. T sells for $22 and S for $16. The constraints for Tieton's 2 departments are:

PRO Shops has a capacity of 45,000 units and is currently producing and selling 40,000 at $25 a unit. The present cost structure, on a per unit basis, is: Direct material \ 10 Direct labour 5 Variable overhead 3 Fixed overhead 4 An order for 7,000 units has been received from a Japanese company at a price of $20 per unit. If the order is accepted, profit will:

The managers of Adamson Apple Co. are considering dropping one of their product lines. The product line typically has the following revenue and costs: $\begin{array}{lr}\text { Sales } & \$ 100,000 \\\text { Variable costs } & \underline{80,000} \\\text { Contribution margin } & 20,000 \\\text { Fixed costs } & 25,000 \\\text { Operating loss }&\$(5,000)\end{array}$ If the product line is discontinued, $4,000 of the fixed costs would be avoided. Also, the freed-up capacity would generate $4,000 of additional contribution margin from the expansion of other product lines. If Adamson discontinues the product line, the effect on overall income will be:

To make a decision about a special order, managers need to know whether:

Uncertainties about future revenues affect all nonroutine operating decisions.