Exam 8: Using Accounting Information to Make Managerial Decisions

R&W Manufacturing Company produces men's hiker shorts.The selling price of the shorts is $35.The following standard cost data per unit includes $7 direct material, $4 direct labor and $12 manufacturing overhead (50% variable, 50% fixed).R&W has received a special order for 200 pairs of shorts at a price of $20 each.The only additional cost of accepting the special order is a sales commission of $1 per unit.R&W has ample capacity to produce the special order without interrupting regular production.Ignoring qualitative factors, should R&W accept the special order?

What is an opportunity cost and what is the impact of opportunity cost on a decision to outsource the production of an item?

The Theory of Constraints was developed by Eli Goldratt to

Range Rider Industries manufactures chairs and tables that are in high demand by local office furniture stores.Following is information for each of these products: Range Rider has 900 machine hours available each month.The demand for chairs is 560 units per month and the demand for tables is 340 units per month.If Range Rider allocates its production capacity between the chairs and tables so that it maximizes the company's contribution margin, what will the total contribution margin be?

Ellis Dover is a scout for a Major League Baseball team based in Phoenix, Arizona.Ellis needs to travel to Los Angeles, California on June 1 to perform a variety of professional functions prior to the team travelling to Los Angeles to play.If Ellis flies, he could catch a 6A.m.flight on June 1.In order to perform all of his professional responsibilities, Ellis will need to spend the night and catch a flight on June 2 to return to Phoenix.If Ellis flies, he will need to rent a car for $38 per day.To cover meals and other incidental expenses, Ellis will receive $45 per day (per diem) for each day he works out of town.Flights between Phoenix and Los Angeles can be purchased for $89 one way. Phoenix is approximately 300 miles from Los Angeles, a 5-hour drive at speed limits permitted on the freeways connecting the two cities.If he drives from Phoenix to Los Angeles, Ellis would need to leave the afternoon of May 31 and would be reimbursed $.50 per mile.He would need to spend 2 nights in a hotel, the night of May 31 and the night of June 1.He would return to Phoenix by car on June 2.The hotel used by the team charges $160 per night.What is the incremental cost of driving over flying?

Kentucky Distributors has two divisions - Northern and Southern.The divisions have provided the following financial information: Kentucky's executives are considering the elimination of the Northern division.If the division is eliminated, the common fixed costs will remain unchanged.Given these data, should the Northern division be eliminated? Why?

Impala Industries manufactures a component used by car manufacturers.Impala can produce 1,000,000 components per year.A foreign car manufacturer has approached Impala with an offer to purchase 120,000 components at price of $6 per unit.Impala's results for last year are as follows: If Impala accepts the offer, it will only be able to sell 880,000 units at the regular price due to its capacity constraints.What will Impala's total operating income be next year if it accepts the offer?

One way in which companies have tried to combat information overload is through the creation of

In an outsourcing decision, one important factor is the quality of the outsourced product.

Once viable alternatives have been identified by a decision maker, which of the following is not a step that should be followed?

Which of the following is not a criterion of relevant information?

Sky Mountain Bakery makes doughnuts, cupcakes, and scones that are in high demand by local restaurants and hotels.Following is information for each of these products: Sky Mountain has 2,000 machine hours available each month.Demand for each item exceeds Sky Mountain's capacity to produce the item.In order to maximize the company's total contribution margin, in what sequence should Sky Mountain fill orders for the three products?

ABC Corporation produces three products, Standard, Deluxe and Superior, with the following characteristics: The company has only 1,800 machine hours available each period.If demand exceeds the company's capacity, in what sequence should orders for the three products be filled to maximize the company's total contribution margin?

In a decision to add or eliminate a product or service, which of the following is an avoidable cost?

Complete the table below by placing an "X" under each heading that classifies the costs as avoidable or unavoidable in a decision to accept a special order.

To focus on the facts that make a difference in their decisions, managers need to know how to eliminate

Lark Company manufactures dog food for distribution in Washington, Oregon, and California.A dog food distributor from Florida has approached Lark and offered to purchase 240,000 pounds of dog food for $1.40 per pound.Lark can produce 2,000,000 pounds of dog food per year, and its results for last year are as follows: If Lark accepts the offer, it will only be able to sell 1,760,000 pounds of dog food at the regular price due to its capacity constraints.What will Lark's total operating income be next year if it accepts the offer?

Moving a company's business processes to a foreign country is referred to as

Which of the following is not relevant in the decision to accept a special order?

Pueblo Production Company manufactures 50,000 high-definition televisions each year.Pueblo is considering purchasing the glass screens from an outside source rather than producing them internally.The following data relate to the glass screens: What is the total relevant cost to internally produce 50,000 glass screens?