Exam 3: Using Costs in Decision Making

The following annual information is for Bressler Corporation: Total fixed costs: $100,000 -If the sales mix shifts to one unit of Product X and two units of Product Y,then the break-even point in units for a year will:

When a firm maximizes profits it will simultaneously minimize opportunity costs.

What is meant by the term break-even point? Why should a manager be concerned about the break-even point?

When opportunity costs exist,they are always relevant.

Skate Magic manufactures three different product lines, Model TS, Model AY, and Model GG. Considerable market demand exists for all models. The following per unit data apply: -If there is a machine breakdown,which model is the most profitable to produce?

In linear programming,total fixed costs will remain unchanged regardless of the production plan.

In multiproduct situations,when the sales mix shifts toward the product with the highest contribution margin per unit,then:

Jim's 5-year-old Hyundai Elantra requires repairs estimated at $3,000 to make it roadworthy again. His friend, Julie, suggested that he should buy a 5-year-old used Honda Civic instead for $3,000 cash. Julie estimated the following costs for the two cars: -What should Jim do? What are his savings in the first year?

In 2011,SSPC Company has sales of 8,000 units at $10 each,variable costs totaling $20,000,and fixed costs of $30,000.In 2008,the company expects annual insurance costs to increase by $4,000 to $9,000. Required: a.Calculate operating income and the breakeven point in units for 2011. b.Calculate the breakeven point in units for 2012.

Variable costs vary with the level of production or sales volume.

Constraints from the theory of constraints may include:

The following annual information is for Bressler Corporation: Total fixed costs: $100,000 -What is the operating income for a year,assuming actual sales total 150,000 units,and the sales mix is two units of Product X and one unit of Product Y?

In multiproduct situations when the sales mix shifts toward the product with the lowest contribution margin per unit,the break-even quantity will decrease.

Lewis Auto Company manufactures a part for use in its production of automobiles.When 10,000 items are produced,the costs per unit are: Monty Company has offered to sell Lewis Auto Company 10,000 units of the part for $120 per unit.The plant facilities could be used to manufacture another part at a savings of $180,000 if Lewis Auto accepts the supplier's offer.In addition,$20 per unit of fixed manufacturing support on the original part would be eliminated. Required: a.What is the relevant cost per unit for the original part? b.Which alternative is best for Lewis Auto Company? By how much?

For decision-making,differential costs assist in choosing between alternatives.

Sometimes qualitative factors are the most important factors in make-or-buy decisions.

Marine Industrial Coatings, Inc. is considering replacing its existing computer system with a new computer system. The new system can offer considerable savings in computer processing and inventory management costs. Information about the existing system and the new system follow: -If Marine Industrial Coatings replaces the existing computer system with the new one,over the next 5 years operating income will:

Charlie's Chairs manufactures two models,Standard and Premium.Weekly demand is estimated to be 120 units of the Standard Model and 70 units of the Premium Model.Only 420 machine hours are available per week.The following per unit data apply: Required: a. For each model,compute the contribution margin per machine hour. b. To maximize weekly production profits,how many machine hours would you recommend of each model? How many units of each model? c. If there are 500 machine hours available per week (instead of only 420 machine hours per week),how many chairs of each model should Charlie's produce to maximize profits?

The time over which a decision maker can adjust capacity is referred to as the short run.

Which of the following describes a variable cost?