Exam 11: Decision Making and Relevant Information

Factors used to decide whether to outsource a part include ________.

Bid prices and costs that are relevant for regular orders are the same costs that are relevant for one-time-only special orders.

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. Which of the three product models should be produced first if management incorporates a short-run profit maximizing strategy?

The theory of constraints is more useful for the long-run management of costs since it takes a long-run perspective and focuses on improving processes by eliminating non-value-added activities and reducing the costs of performing value-added activities.

When replacing an old machine with a new machine, the new machine's depreciation expense is relevant.

An incremental cost is the difference in total irrelevant costs between two alternatives.

Management is considering two alternatives. Alternative A has projected revenue per year of $100,000 and costs of $70,000 while Alternative B has revenue of $100,000 and costs of $60,000. Both projects require an initial investment of $250,000 of which $75,000 has already been set aside and will be used as a down payment on the project that is chosen. There are also other qualitative factors that management must consider before making a final choice. Which of the following statements is correct about relevant costs and relevant revenues.

Explain why sunk costs are not considered relevant when choosing among alternatives with example.

When there is an excess capacity, it makes sense to accept a one-time-only special order for less than the current selling price if ________.

If Option 1 costs $120 and Option 2 costs $90, then the differential cost is $30.

Why is the depreciation of an old equipment irrelevant to decision making?

Product-mix decisions usually have only a short-run focus because they typically arise in the context of capacity constraints that can be relaxed in the long run.

Quantitative factors ________.

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 change in operating profits if the one-time-only special order for 1,030 units is accepted for $550 a unit by Crandle?

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: If there is a machine breakdown, which model is the most profitable to produce?

Hartley's Meat Pies is considering replacing its existing delivery van with a new one. The new van can offer considerable savings in operating costs. Information about the existing van and the new van follow: Relevant costs for this decision include ________.

Managers are examining a possible replacement of a machine decision and generate the following numbers: Book value of old machine $1,00,000 Current disposal value of old machine $50,000 Loss on disposal of old machine $300,000 Cost of new machine $600,000 In performing an analysis and in attempt to answer the question, "should we replace the old machine", which of the following statements would be true

W.T. Ginsburg Engine Company manufactures part ACT31107 used in several of its engine models. Monthly production costs for 1,010 units are as follows: It is estimated that 7% 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. The maximum price that W.T. Ginsburg Engine Company should be willing to pay the outside supplier is ________.

A sunk cost is a relevant cost in a decision making.

Each of the following are true of relevant information except: