Exam 11: Decision Making and Relevant Information

Outsourcing is risk free to the manufacturer because the supplier now has the responsibility of producing the part.

Which of the following is an appropriate step when identifying relevant costs to make a business Decision?

For one-time-only special orders, fixed costs may be relevant but NOT variable costs.

W.T. Ginsburg Engine Company manufactures part ACT31107 used in several of its engine models. Monthly production costs for 1,000 units are as follows: It is estimated that 6% of the fixed overhead costs assigned to ACT31107 will no longer be incurred if the company purchases ACT31107 from the outside supplier. W.T. Ginsburg Engine Company has the option of purchasing the part from an outside supplier at $94.75 per unit. If W.T. Ginsburg Engine Company purchases 1,000 ACT31107 parts from the outside supplier per month, then its monthly operating income will ________. (Round any intermediary calculations and your final answer to the nearest cent.)

Quantitative factors, such as direct material costs, are outcomes that are measured in numerical terms.

When capacity is constrained, relevant costs equal incremental costs plus opportunity costs.

A recent college graduate has the choice of buying a new car for $33,500 or investing the money for four years with an 11% expected annual rate of return. He has an investment of $41,000 in equities and bonds which yields 8% expected annual rate of return. If the graduate decides to purchase the car, the best estimate of the opportunity cost of that decision is ________.

Springer Products manufactures three different product lines, Model X, Model Y, and Model Z. Considerable market demand exists for all models. The following per unit data apply: Which model has the greatest contribution margin per machine-hour?

Feedback from previous decisions uses historical information and, therefore, is irrelevant for making future predictions.

In linear programming, the goals of management are expressed in ________.

Outsourcing is purchasing from outside vendors parts and other goods instead of producing your own and contracting for services instead of providing them yourself.

Full costs of a product include variable and fixed costs in a particular business function in the value chain.

Sunk costs ________.

Activity based costing (ABC) systems are less useful than the theory of constraints (TOC) for long-run pricing, cost control, and capacity management.

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

Giant Company has three products, A, B, and C. The following information is available: Giant Company is thinking of dropping Product C because it is reporting a loss. Assuming Giant drops Product C and does NOT replace it, operating income will ________.

Which of the following is not true about one-time-only special orders?

Equal weight must be given to qualitative factors and quantitative nonfinancial factors while making decisions.

Kitchens Sales Inc. is approached by Mr. Louis Cifer, 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: Kitchens Sales Inc. has excess capacity. Mr. Cifer wants the cabinets in cherry rather than oak, so direct material costs will increase by $70 per unit. The average marketing cost of Kitchens Sales product is $173 per order. For Kitchens, what is the full cost of the one-time-only special order?

Planet Design Services, Inc., is considering replacing a machine. The following data are available: The difference between keeping the old machine and replacing the old machine is ________.