Exam 11: Decision Making and Relevant Information

Flash City Inc. manufactures small flash drives and is considering raising the price by 75 cents a unit for the coming year. With a 75-cent price increase, demand is expected to fall by 7,000 units. Would you recommend the 75-cent price increase?

A.C. Tech Manufacturing Appliances manufactures three sizes of kitchen appliances: small, medium, and large. Product information is provided below. The maximum machine-hours available are 6,500 per week. What is the contribution margin per machine-hour for a medium appliance?

The objective of the Theory of Constraints is to increase throughput margin while increasing investment in plant and equipment.

Flash City Inc. manufactures small flash drives and is considering raising the price by 75 cents a unit for the coming year. With a 75-cent price increase, demand is expected to fall by 7,000 units. If the price increase is implemented, operating profit is projected to ________.

Opportunity costs are not recorded in financial accounting systems because historical record keeping is limited to transactions involving alternatives that managers actually selected rather than alternatives that they rejected.

Explain the five-step decision process that managers can use to make decisions.

When making decisions ________.

A supplier offers to make Part A for $30. Altec Services Corporation has relevant costs of $47 a unit to manufacture 1,020 units of Part A. If there is excess capacity, the opportunity cost of buying Part A from the supplier is ________.

Crandle Manufacturers Inc. is approached by a potential customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular customers: What is the full cost of the product per unit?

A cost may be relevant for one decision, but NOT relevant for a different decision.

Are relevant revenues and relevant costs the only information needed by managers to select among alternatives? Explain using examples.

Qualitative factors are outcomes that can be easily measured in numerical terms, such as the costs of direct labor.

In evaluating different alternatives, it is useful to concentrate on ________.

Decisions about whether a producer of goods or services will insource or outsource are also called make-or-buy decisions.

Granfield Corporation manufactures two products, Product A and Product B. The following information was available: If Granfield Corporation could produce and sell either 10,400 units of Product A or 5,900 units of Product B at full capacity, it should produce and sell ________.

Which of the following would be considered in a make-or-buy decision?

State Road Fabricators Inc. is considering eliminating Model A02777 because of losses over the past quarter. The past three months of information for Model A02777 are summarized below: Overhead costs are 75% variable and the remaining 25% is depreciation of special equipment for model A02777 that has no resale value. If Model A02777 is dropped from the product line, operating income will ________.

Which of the following costs is irrelevant in the decision making of a special order when there is idle production capacity - enough excess capacity to accept the order?