Exam 4: Relevant Information for Decision Making

Financial institutions often consider outsourcing their information technology functions internationally. Which of the following are qualitative factors that managers should consider in the decision? I. Potential language barriers II. Political stability III. The tax cash flows

Strategic plans require managers to emphasize products that generate the highest short-term profit.

Flox Hill Consulting has its own printing department with the following annual costs: Supplies \ 400,000 Labor 300,000 Overhead 200,000 Total \ 1900,000 The managers would like to outsource the printing function because it is not considered a core competency. The overhead is 60% fixed. Of the fixed overhead, $60,000 is the salary of the printing department director. The remaining overhead is an allocation of overhead costs for the entire consulting firm. The department director would still oversee the printing activities and coordinate all of the printing activities for the organization with the outside printing vendor. The maximum amount that Flox Hill is willing to pay an outside firm to replace the printing services is:

A manufacturer operating with excess capacity has been asked to fill a special order at $7.25 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, $1.50 for direct labour, $1.50 for variable overhead, and $0.50 for sales commission. No sales commission would be paid on this special order. The average overhead per unit is $0.25. The expected contribution margin per unit for the special order is:

The process for addressing a nonroutine operating decision begins with:

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. If String accepts the special order, income before taxes will:

Managers should discontinue a business if its contribution margin is less than the sum of:

For manufacturers, outsourcing decisions are often known as:

Vicade has 1,000 commercial video game machines in inventory produced at a cost of $400 each (60% variable and 40% fixed). The machines were to have been sold for $1,000 each. However, the machines currently contain a minor malfunction reducing their selling price to $150 each. The company could correct the malfunction at a variable cost of $250 each and then sell the machines for $550 each. For purposes of determining whether the machines should be reworked, what is the opportunity cost per unit?

In nonroutine situations, managers must identify the type of decision to be made. Which of the following is not an example of a nonroutine operating decision?

Future revenues and costs are often a source of uncertainty for nonroutine operating decisions. Future revenues and costs can be affected by: I. Economic environment changes II. Customer demand III. Government regulation IV. Forecasting techniques

Horton and Associates produces two products named BigBlast and LittleBlast. Last month 4,000 units of BigBlast and 1,000 units of LittleBlast were produced and sold. Following are average prices and costs for last month: BiqBlast LittleBlast Selling price \ 100 \ 200 Direct materials (25) (75) Direct labour (15) (35) Variable overhead (5) (30) Product line fixed costs (10) (40) Corporate fixed costs (25) (25) Average margin per unit \2 0 \5 The production lines for both products are highly automated, so large changes in production cause very little change in total direct labour costs. Workers who are classified as direct labour monitor the production line and are permanent employees who regularly work 40 hours per week. All costs other than "corporate fixed costs" listed under each product line could be avoided if the product line were dropped. What is the breakeven sales volume (in units) for BigBlast? (In other words, what is the sales volume at which Horton should be financially indifferent between dropping and keeping BigBlast?)

A manufacturer 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. Assume there is no excess capacity (i.e., the company can sell every unit that it produces to regular customers). Under the general decision rule, the minimum price per unit for this special order would be:

A factor in special order decisions is the effect that the decision will have on regular customers.

Amortization is irrelevant in decision making: