Exam 11: Decision Making and Relevant Information

If a company has excess capacity, the most it would pay for buying a product that it currently makes would be the ________.

Revenues that remain the same for two alternatives being examined are relevant revenues.

How does a manager go about choosing which of three products to produce and sell when each product uses a single machine with a limited capacity?

Which of the following is a relevant cost to be included in a make-or-buy decision?

For short-run product-mix decisions, maximizing contribution margin will also result in maximizing operating income.

Sunk costs ________.

If management takes a multiple-year view in the decision model and judges success according to the current year's results, a problem will occur in the ________.

John's 8-year-old Chevrolet Trail Blazer requires repairs estimated at $7,000 to make it road worthy again. His wife, Sherry, suggested that he should buy a 5-year-old used Jeep Grand Cherokee instead for $7,000 cash. Sherry estimated the following costs for the two cars: What should John do? What are his savings in the first year?

A segment has the following data: What will be the incremental effect on net income if this segment is eliminated, assuming the fixed costs will be allocated to profitable segments?

Producing on schedule, quality of supplier products or services, reliability, along with costs are all important considerations when____

Book value is defined as the ________.

In a make-or-buy decision when there are alternative uses for capacity, the opportunity cost of idle capacity is relevant.

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

Overhead costs allocated to the sales office and individual customers are always relevant when deciding whether to drop a customer.

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 labor 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 Direct manufacturing labor is limited to 3,000 hours a week and 1,000 hours is all that the company's outdated machines can run a week.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 labor and 60 machine-hours. Wood beams require 150 labor hours and 120 machine-hours. Required: Formulate the objective function and constraints necessary to determine the optimal product mix.

What role does a trade-in allowance on old equipment play in a decision to retain or replace equipment?

Rubium Micro Devices currently manufactures a subassembly for its main product. The costs per unit are as follows: Crayola Technologies Inc. has contacted Rubium with an offer to sell 10,000 of the subassemblies for $138.00 each. Rubium will eliminate $89,000 of fixed overhead if it accepts the proposal. What are the relevant costs for Rubium?

Unit cost data can most mislead decisions by ________.

Compare and contrast the theory of constraints and activity based costing. Which is more useful in short-run and long-run management of costs?

A study by a consultant shows that a company that had $2,000,000 of inventory was holding excess inventory of $320,000 that could be eliminated with a few process improvements. It also has $620,000 in marketable securities that yield 5% per year. What is the estimated annual opportunity cost of holding the excess inventory?