Exam 11: Decision Making and Relevant Information

A client in another province needs immediate help in solving a personnel training problem in the shipping department. Match each activity on the basis of its relationship with this consulting engagement. Items may have multiple classifications. -Four employees will have to spend three nights in Quebec City, the hotel bill has been negotiated in advance for $1,800

Silver Lake Cabinets is approached by Ms. Jenny Zhang, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. The following per unit data apply for sales to regular customers: Silver Lake Cabinets has excess capacity. Ms. Zhang wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit. Required: a. For Silver Lake Cabinets, what is the minimum acceptable price of this one-time-only special order? b. Other than price, what other items should Silver Lake Cabinets consider before accepting this one-time-only special order? c. How would the analysis differ if there was limited capacity?

Jamboree Manufacturing Ltd. produces two products, steel and wood beams. Steel beams have a unit contribution margin of $400, and wood beams have a unit contribution margin of $300. The demand for steel beams exceeds their production capacity, which is limited by available direct labour and machine hours. The maximum demand for wood beams is 60 per week. Management desires that the product mix should maximize the weekly contribution toward fixed costs and profits. Direct manufacturing labour is limited to 2,700 hours a week and 900 hours is all that the company's outdated machines can run a week. The steel beams require 180 hours of labour and 90 machine hours. Wood beams require 270 labour hours and 60 machine hours. Required: Formulate the linear programming objective function and constraints necessary to determine the optimal product mix.

Comics Plus has a current production level of 200,000 comics per month. Unit costs at this level are: Current monthly sales are 180,000 units. Printers Ltd. has contacted Comics Plus about purchasing 15,000 units at $1.00 each. Current sales would not be affected by the special order, and variable marketing/distributing costs would not be incurred on the special order. What is Comics Plus' change in profits if the order is accepted?

Omark Corporation currently manufactures a subassembly for its main product. The variable costs per unit are $48, in addition to a $6 charge based on estimated selling expenses. R-Corp has contacted Omark with an offer to sell them 5,000 of the subassemblies for $44.00 each. Omark will eliminate $50,000 of fixed overhead if it accepts the proposal. What is increase or decrease in profit from accepting the offer?

Aunt Lydia's Cookies, Inc., prepares frozen gourmet cookies for shipment to upscale grocery stores as well as mailing to web and catalog customers. The company has two workstations, cooking and distribution. The cooking station is limited by the cooking time of the food. Distribution is limited by the speed of the workers. Distribution normally waits on food from cooking. Because the demand has increased in recent months to 4,000 dozen cookies, management is considering adding another oven in the cooking station or else having the cooks start to work earlier. The cost of adding another oven in the cooking station would add an average of $8 per hour. The monthly cost of operating the cooking station one more hour each day is $1,500. The current operating hours total eight hours a day, 24 days a month. The contribution margin of the finished products is currently $2 per dozen. Inventory carrying costs average $0.50 per dozen per month. Either the extra hour or the new oven at the cooking station would increase production by 50 dozen a day, with a long-run increase of 100 dozen units in finished goods inventory to 500 dozen. Required: a. What is the total production per month if the change is made? b. What is the current monthly contribution margin, and the expected monthly product contribution for both of the possible changes? Assume long-run production equals sales. c. What course of action would you recommend?

The firm has a $2,000 maintenance contract on its telecommunication system for the current year

Snapper Tool Company has a production capacity of 3,000 units per month, but current production is only 2,500 units. Total manufacturing costs are $60 per unit and marketing costs are $16 per unit. Doug Levy offers to purchase 500 units at $76 each for the next five months. Should Snapper accept the one-time-only special order if only absorption-costing data are available?

Ratzlaff Company has a current production level of 20,000 units per month. Unit costs at this level are: Current monthly sales are 18,000 units. Jim Company has contacted Ratzlaff Company about purchasing 1,500 units at $2.00 each. Current sales would NOT be affected by the one-time-only special order, and variable marketing/distribution costs would NOT be incurred on the special order. What is Ratzlaff Company's change in operating profits if the special order is accepted?

Kirkland Company manufactures a part for use in its production of hats. When 10,000 items are produced, the costs per unit are: Mike Company has offered to sell to Kirkland Company 10,000 units of the part for $6.00 per unit. The plant facilities could be used to manufacture another item at a savings of $9,000 if Kirkland accepts the offer. In addition, $1.00 per unit of fixed manufacturing overhead on the original item would be eliminated. Required: a. What is the relevant per unit cost for the original part? b. Which alternative is best for Kirkland Company? By how much?

Clearwater Company operates a wine outlet in a tourist area. One litre bottles sell for $12. Daily fixed costs are $3,000, and variable costs are $6 per litre. An average of 750 litres are sold each day. Clearwater has a capacity of 800 litres per day. Required: a. Determine the average cost per bottle. b. A bus loaded with 40 senior citizens stops by at closing time and the tour director offers Clearwater $300 for 40 litres. Clearwater refuses, saying they would lose $2.50 on each litre. Is Clearwater correct about the $2.50? Why or why not? c. A fund-raising organization has offered Clearwater a one-year contract to buy 300 litres a day for $7.50 each. Should they accept the offer? Why or why not?

A florist produces table settings for weddings. Based on an annual volume of 10,000 units it incurs $100,000 in fixed manufacturing costs. Variable costs per unit are $16 for direct materials, $3 for direct manufacturing labour, and $14 for variable factory overhead. Another company has offered to supply empty baskets for the settings for $8, with a minimum annual order of 5,000 units. If the florist accepts the offer, it will be able to reduce variable labour and overhead costs by 50 percent. The materials for the empty baskets will cost $4 if the florist assembles them. Required: a. Determine if they should make or assemble the empty baskets. b. Should they make or assemble the empty baskets if they could rent the space that the basket assembly requires for $16,000 per year to another company?

Pat, a Pizzeria manager, replaced the convection oven just six months ago. Today, Turbo Ovens Manufacturing announced the availability of a new convection oven that cooks more quickly with lower operating expenses. Pat is considering the purchase of this faster, lower-operating cost convection oven to replace the existing one they recently purchased. Selected information about the two ovens is given below: ? Required: a. What costs are sunk? b. What costs are relevant? c. What are the net cash flows over the next 5 years assuming the Pizzeria purchases the new convection oven? d. What other items should Pat, as manager of the Pizzeria, consider when making this decision?

Last year, a sailboard company produced two types of boards: a regular board for multi-purpose sailing; and, a special trick board used by experts for competitions. The regular board sells for $750 and the competition board sells for $1,350. The variable production costs are $250 and $400 respectively, and the company has $400,000 in fixed costs overall. Marketing staff have determined that the company should specialize in the competition boards only, and sell the regular boards, if at all, under a different brand name. Last year the company made a profit, selling twice as many regular boards as competition boards, resulting in a fixed cost allocation of $5.00 per board. It takes 6 hours of direct labour to make a regular board and 12 hours to make a competition board. The company worked at full capacity of 19,500 direct labour hours last year. Based on the above information only, which product or mix of products, should the company choose? Assume that any and all production can be sold.

Car Parts Company manufactures a part for use in its production of automobiles. The costs per unit when 10,000 items are produced are: Auto Company has offered to sell to Car Parts Company 10,000 units of the part for $60. The plant facilities could be used to manufacture another part at a savings of $90,000 if Car Parts accepts the offer. In addition, $10 per unit of fixed manufacturing overhead on the original part would be eliminated. Required: a. What is the relevant per unit cost for the original part? b. Which alternative is best for Car Parts Company? By how much?

Which of the following is NOT a key step in managing bottleneck resources?

Lynn Valley Corporation currently manufactures a subassembly for its main product. The costs per unit are as follows: Reliance Corp has contacted Lynn Valley with an offer to sell them 5,000 of the subassemblies for $44.00 each. Lynn Valley will eliminate $50,000 of fixed overhead if it accepts the proposal. Should Omark make or buy the subassemblies? What is the difference between the two alternatives?

A client in another province needs immediate help in solving a personnel training problem in the shipping department. Match each activity on the basis of its relationship with this consulting engagement. Items may have multiple classifications. -Round-trip transportation for each staff member is $500

Southwestern Company needs 1,000 motors in its manufacture of automobiles. It can buy the motors from Jinx Motors for $1,250 each. Southwestern's plant can manufacture the motors for the following costs per unit: If Southwestern buys the motors from Jinx, 30% of the fixed manufacturing overhead applied will be avoided. Required: a. Should the company make or buy the motors? b. What additional qualitative factors should Southwestern consider in deciding whether or not to make or buy the motors?

Local Steel Construction Company produces two products, steel and wood beams. Steel beams have a unit contribution margin of $200, and wood beams have a unit contribution margin of $150. The demand for steel beams exceeds Local Steel Construction Company's production capacity, which is limited by available direct labour and machine-hours. The maximum demand for wood beams is 90 per week. Management desires that the product mix should maximize the weekly contribution toward fixed costs and profits. Direct manufacturing labour is limited to 3,000 hours a week and 1,000 hours is all that the company's outdated machines can run a week. The steel beams require 120 hours of labour and 60 machine-hours. Wood beams require 150 labour hours and 120 machine-hours. Required: Formulate the objective function and constraints necessary to determine the optimal product mix.