Question 1

Relevant (i.e., differential) cost analysis:

Accepted Answer

A)  Takes all variable and fixed costs into account to analyze decision alternatives. 
B)  Considers only variable costs as these are the costs that change with each decision alternative. 
C)  Considers only nonfinancial and strategic factors associated with each decision alternative. 
D)  Considers all variable and fixed future costs that change with each decision alternative. 
E)  Allows the decision maker to group all types of costs together to facilitate decision making. 
A)  Takes all variable and fixed costs into account to analyze decision alternatives. 
B)  Considers only variable costs as these are the costs that change with each decision alternative. 
C)  Considers only nonfinancial and strategic factors associated with each decision alternative. 
D)  Considers all variable and fixed future costs that change with each decision alternative. 
E)  Allows the decision maker to group all types of costs together to facilitate decision making. D

Question 2

SportsCards Inc.manufactures baseball cards sold in packs of 10 in drugstores and grocery stores throughout the country.It is the second leading firm in an industry with four major firms.SportsCards has been approached by Zip Cereal Inc., which would like to order a special edition of cards to use as a promotion with its new cereal.SportsCards would be solely responsible for designing and producing the cards.Zip wants to order 30,000 sets and has offered $25,500 for the total order.Each set will consist of 30 cards.SportsCards currently produces cards in sheets of 120.   SportsCards would incur no marketing costs for the special order.It has the capacity to accept this order without interrupting regular production.
Required:
1.Based solely on a short-term financial analysis, should SportsCards accept the special order? Why or why not? Support your answer with appropriate calculations.
2.What are the important strategic issues in the decision?

Accepted Answer

1.       Therefore, SportsCards should accept the special order from Zip Cereal since the sales price per set ($0.85) exceeds the relevant cost per set ($0.75).
2.SportsCards succeeds by developing new customers and keeping costs down.Also, a critical success factor is the firm's ability to negotiate licensing agreements with the major leagues and the players.The special order with Zip Cereal Inc.is a competitively important decision because it will help SportsCards to have its product distributed widely among its key customers.Promotion of the brand name is a key success factor for SportsCards, and this special order is one important way to accomplish that.

Question 3

Relevant costs in a make-vs.-buy decision of a part include:

Accepted Answer

A)  Corporate headquarter costs that will be allocated differently depending on the decision option chosen. 
B)  Setup overhead costs for the manufacture of the product using the outsourced part. 
C)  The cost of currently used manufacturing capacity that has alternative uses if the part is outsourced. 
D)  Factory-related insurance cost. 
E)  Corporate (i.e., headquarter) salaries. 
A)  Corporate headquarter costs that will be allocated differently depending on the decision option chosen. 
B)  Setup overhead costs for the manufacture of the product using the outsourced part. 
C)  The cost of currently used manufacturing capacity that has alternative uses if the part is outsourced. 
D)  Factory-related insurance cost. 
E)  Corporate (i.e., headquarter) salaries. C

Question 4

A "special sales order" within the context of Chapter 11 is:

Accepted Answer

A)  Typically expected. 
B)  A profitable opportunity to sell a specified quantity of a firm's product or service. 
C)  A one-time opportunity to sell a specified quantity of a product or service. 
D)  A particularly large customer order. 
E)  In most cases, a rush order. 
A)  Typically expected. 
B)  A profitable opportunity to sell a specified quantity of a firm's product or service. 
C)  A one-time opportunity to sell a specified quantity of a product or service. 
D)  A particularly large customer order. 
E)  In most cases, a rush order.

Question 5

The practice of setting prices below average variable cost and with accompanying plans to raise prices later to recover the losses from the lower prices is referred to as:

Accepted Answer

A)  Marginal cost pricing. 
B)  Activity-based pricing. 
C)  Menu-based pricing. 
D)  Cost-plus pricing. 
E)  Predatory pricing. 
A)  Marginal cost pricing. 
B)  Activity-based pricing. 
C)  Menu-based pricing. 
D)  Cost-plus pricing. 
E)  Predatory pricing.

Question 6

Keego Enterprises manufactures two products, boat wax and car wax, in two departments, Mixing and Packaging. The Mixing Department has 800 hours per month available while the Packaging Department has 1,200 hours per month available. Production of the two products cannot exceed 36,000 pounds. Data on the two products follow: The Mixing Department (M) constraint for the Keego linear program would be (where B and C are expressed in 100-pound units of output):

Accepted Answer

A)  2.4M + 6P ≤ 36,000. 
B)  5B + 2.4C ≥ 800. 
C)  5B + 2.4C ≤ 800. 
D)  5B + 2.4C = 800. 
E)  7.4M + 9.6P ≤ 36,000. 
A)  2.4M + 6P ≤ 36,000. 
B)  5B + 2.4C ≥ 800. 
C)  5B + 2.4C ≤ 800. 
D)  5B + 2.4C = 800. 
E)  7.4M + 9.6P ≤ 36,000.

Question 7

Maxwell Manufacturing is contemplating the purchase of a new machine to replace a machine that has been in use for seven years. The old machine has a net book value (NBV) of $50,000 and still has five years of useful life remaining. The old machine has a current market value of $5,000, but is expected to have no market value after five years. The variable operating costs and depreciation expenses (straight-line basis) are $135,000 per year. The new machine will cost $90,000, has an estimated useful life of five years with zero disposal value after five years, and an annual operating expense of $118,000 (including straight-line depreciation). Considering the five years in total and ignoring the time value of money and income taxes, what is the difference in total relevant costs for the two decision alternatives (keep vs. replace)?

Accepted Answer

A)  $0. 
B)  $25,000. 
C)  $35,000. 
D)  $40,000. 
E)  $50,000. 
A)  $0. 
B)  $25,000. 
C)  $35,000. 
D)  $40,000. 
E)  $50,000.

Question 8

When there is limited capacity, the minimum acceptable price for a "special sales order" should equal the ________ from the product that is sacrificed plus the incremental costs of the product being produced.

Accepted Answer

A)  Selling price 
B)  Full cost 
C)  Variable cost 
D)  Contribution margin 
E)  Gross profit 
A)  Selling price 
B)  Full cost 
C)  Variable cost 
D)  Contribution margin 
E)  Gross profit

Question 9

A company's approach to a make-or-buy decision:

Accepted Answer

A)  Depends on whether the company is operating at or below the breakeven point. 
B)  Depends on whether the company is operating at or below normal volume. 
C)  Involves an analysis of avoidable costs. 
D)  Should utilize absorption (i.e., full) costing for inventory purposes. 
E)  Should consider an allocation of corporate headquarter expenses to the item in question. 
A)  Depends on whether the company is operating at or below the breakeven point. 
B)  Depends on whether the company is operating at or below normal volume. 
C)  Involves an analysis of avoidable costs. 
D)  Should utilize absorption (i.e., full) costing for inventory purposes. 
E)  Should consider an allocation of corporate headquarter expenses to the item in question.

Question 10

Quinta Inc. manufactures machine parts for aircraft engines. The CEO is considering an offer from a subcontractor who would provide 2,800 units of product QR128 for a total price of $190,000. If Quinta does not purchase these parts from the subcontractor it must produce them in-house with the following costs:  If Quinta produces part QR128 internally, there would be an incremental (and ongoing) overhead cost of $13,000. Calculate the total relevant costs of producing 2,800 units of product QR128.

Accepted Answer

Relevant C

Question 11

The following cost information pertained to the Violin Division of Stringing Music Co. and was based on monthly demand and sales of 100 units: Assume that the Violin Division was evaluating whether it would accept a special sales order for 10 violins at $390 per unit. For this purpose, total relevant cost per unit (given the costs stated above) is:

Accepted Answer

A)  $330. 
B)  $342. 
C)  $390. 
D)  $366. 
E)  $354. 
A)  $330. 
B)  $342. 
C)  $390. 
D)  $366. 
E)  $354.

Question 12

What strategic factors/considerations are generally relevant to the special order decision problem (i.e., whether a company should accept a one-time order from a customer with whom the company does not generally do business)?

Accepted Answer

First, the company should determine whet

Question 13

The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is:

Accepted Answer

A)  The variable manufacturing cost of the component. 
B)  The total manufacturing cost of the component. 
C)  The total variable cost of the component. 
D)  The fixed manufacturing cost of the component. 
E)  Zero. 
A)  The variable manufacturing cost of the component. 
B)  The total manufacturing cost of the component. 
C)  The total variable cost of the component. 
D)  The fixed manufacturing cost of the component. 
E)  Zero.

Question 14

The major problem with relevant cost determination is that it fails to recognize the:

Accepted Answer

A)  Impact of variable costs in the long run. 
B)  Long-term nature of most product-related decisions. 
C)  "Sunk" nature of most fixed product costs. 
D)  Short-term nature of most product-related decisions. 
E)  Need to calculate costs more precisely. 
A)  Impact of variable costs in the long run. 
B)  Long-term nature of most product-related decisions. 
C)  "Sunk" nature of most fixed product costs. 
D)  Short-term nature of most product-related decisions. 
E)  Need to calculate costs more precisely.

Question 15

One of the key management functions is to perform a regular review of product profitability. Which question below would not typically be asked when performing such an analysis?

Accepted Answer

A)  Are the products priced properly? 
B)  Which products are the most profitable? 
C)  Which products should be advertised more aggressively? 
D)  Should any product manager be rewarded, based on product-line results? 
E)  What was the product manager paid last year? 
A)  Are the products priced properly? 
B)  Which products are the most profitable? 
C)  Which products should be advertised more aggressively? 
D)  Should any product manager be rewarded, based on product-line results? 
E)  What was the product manager paid last year?

Question 16

Keego Enterprises manufactures two products, boat wax (B) and car wax (C), in two departments, Mixing and Packaging. The Mixing Department (M) has 800 hours per month available while the Packaging Department (P) has 1,200 hours per month available. Production of the two products cannot exceed 36,000 pounds. Data on the two products follow: The objective function for the linear program Keego would use to determine the optimum monthly product mix (where B and C are expressed in 100-pound units of output) would be:

Accepted Answer

A)  Z = $150B + $200C. 
B)  2B + 1.5C ≥ 36,000. 
C)  2B + 1.5C ≤ 36,000. 
D)  Z = $200B + $150C. 
E)  Z = 8.6B + 8.4B. 
A)  Z = $150B + $200C. 
B)  2B + 1.5C ≥ 36,000. 
C)  2B + 1.5C ≤ 36,000. 
D)  Z = $200B + $150C. 
E)  Z = 8.6B + 8.4B.

Question 17

The Blade Division of Dana Company produces hardened steel blades.Approximately one-third of the Blade Division's output is sold to the Lawn Products Division of Dana; the remainder is sold to outside customers.The Blade Division's estimated sales and cost data for the year ending June 30 are as follows:   The Lawn Products Division has an opportunity to purchase 10,000 identical quality blades from an outside supplier at a cost of $1.25 per unit on a continual basis.Assume that the Blade Division cannot sell any additional products to outside customers.Based solely on short-term financial considerations, should Dana allow its Lawn Products Division to purchase the blades from the outside supplier, and why?

Accepted Answer

A) Yes, because buying the blades would save Dana Company $500. 
B) No, because making the blades would save Dana Company $1,500. 
C) Yes, because buying the blades would save Dana Company $2,500. 
D) No, because making the blades would save Dana Company $2,500. 
A) Yes, because buying the blades would save Dana Company $500. 
B) No, because making the blades would save Dana Company $1,500. 
C) Yes, because buying the blades would save Dana Company $2,500. 
D) No, because making the blades would save Dana Company $2,500.

Question 18

Feel the Difference, Inc.manufactures bath and beauty products such as soaps, skin creams, lotions, and other products primarily for people with dry and sensitive skin.It has just introduced a new line of product that removes the spotting and wrinkling in skin associated with aging.It sells these products in pharmacies and department stores at prices slightly higher than those of other brands because of Feel the Difference's excellent reputation for quality and effectiveness.
Feel the Difference currently has very low utilization of plant capacity.Two years ago, in anticipation of rapid growth, the company opened a new large manufacturing plant, which has yet to be utilized more than 50 percent.Partly for this reason, Feel the Difference has sought new partners and was able, with the help of financial analysts, to locate suitable business partners.The first potential partner identified in this search was a large supermarket chain, All-Mart, which is interested in the partnership because it wants Feel the Difference to manufacture an age cream to sell in its stores.The product would be essentially the same as the Feel the Difference product but would be packaged in the All-Mart brand name.The agreement would pay Feel the Difference $2.00 per unit and would allow All-Mart a limited right to advertise the product as manufactured for All-Mart by Feel the Difference.Feel the Difference's CFO has made some calculations and has determined that the direct materials, direct labor and other variable costs needed for the All-Mart order would be about $1.00 per unit as compared to the full cost of $2.50 (materials, labor, and overhead) for the equivalent Feel the Difference product.
Required:
Should Feel the Difference accept the proposal from All-Mart? Why or why not? (Include strategic considerations)

Accepted Answer

To begin the analysis, the Feel the Diff

Question 19

Which one of the following concepts is correct for determining relevant costs for short-term decision-making?

Accepted Answer

A)  Differential. 
B)  Integrative. 
C)  Variable. 
D)  Subjective. 
E)  Absorption. 
A)  Differential. 
B)  Integrative. 
C)  Variable. 
D)  Subjective. 
E)  Absorption.

Question 20

Sensitivity analysis in linear programming is used to:

Accepted Answer

A)  Determine the degree that the constraints vary. 
B)  Test the accuracy of the parameters in a model. 
C)  Develop the technical matrix used to determine the optimal solution. 
D)  Determine whether and how the optimal decision would change in response to changes in the parameters in the model. 
E)  Develop objective function coefficients. 
A)  Determine the degree that the constraints vary. 
B)  Test the accuracy of the parameters in a model. 
C)  Develop the technical matrix used to determine the optimal solution. 
D)  Determine whether and how the optimal decision would change in response to changes in the parameters in the model. 
E)  Develop objective function coefficients.

Relevant (i.e., differential) cost analysis:

Relevant costs in a make-vs.-buy decision of a part include:

A "special sales order" within the context of Chapter 11 is:

The practice of setting prices below average variable cost and with accompanying plans to raise prices later to recover the losses from the lower prices is referred to as:

When there is limited capacity, the minimum acceptable price for a "special sales order" should equal the ________ from the product that is sacrificed plus the incremental costs of the product being produced.

A company's approach to a make-or-buy decision:

What strategic factors/considerations are generally relevant to the special order decision problem (i.e., whether a company should accept a one-time order from a customer with whom the company does not generally do business)?

The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is:

The major problem with relevant cost determination is that it fails to recognize the:

One of the key management functions is to perform a regular review of product profitability. Which question below would not typically be asked when performing such an analysis?

Which one of the following concepts is correct for determining relevant costs for short-term decision-making?

Sensitivity analysis in linear programming is used to:

Cost Management and Strategy

Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map

Basic Cost Management Concepts

Job Costing

Activity-Based Costing and Customer Profitability Analysis

Process Costing

Cost Allocation: Departments, Joint Products, and By-Products

Cost Estimation

Short-Term Profit Planning: Cost-Volume-Profit CVP Analysis

Strategy and the Master Budget

Strategy and the Analysis of Capital Investments

Cost Planning for the Product Life Cycle: Target Costing, Theory of Constraints, and Strategic Pricing

Operational Performance Measurement: Sales, Direct-Cost Variances, and the Role of Nonfinancial Performance Measures

Operational Performance Measurement: Indirect-Cost Variances and Resource-Capacity Management

Operational Performance Measurement: Further Analysis of Productivity and Sales

The Management and Control of Quality

Strategic Performance Measurement: Cost Centers, Profit Centers, and the Balanced Scorecard

Strategic Performance Measurement: Investment Centers and Transfer Pricing

Management Compensation, Business Analysis, and Business Valuation

Filters

Exam 11: Decision Making With a Strategic Emphasis

Relevant (i.e., differential) cost analysis:

Relevant costs in a make-vs.-buy decision of a part include:

A "special sales order" within the context of Chapter 11 is:

The practice of setting prices below average variable cost and with accompanying plans to raise prices later to recover the losses from the lower prices is referred to as:

When there is limited capacity, the minimum acceptable price for a "special sales order" should equal the ________ from the product that is sacrificed plus the incremental costs of the product being produced.

A company's approach to a make-or-buy decision:

What strategic factors/considerations are generally relevant to the special order decision problem (i.e., whether a company should accept a one-time order from a customer with whom the company does not generally do business)?

The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is:

The major problem with relevant cost determination is that it fails to recognize the:

One of the key management functions is to perform a regular review of product profitability. Which question below would not typically be asked when performing such an analysis?

Which one of the following concepts is correct for determining relevant costs for short-term decision-making?

Sensitivity analysis in linear programming is used to:

Cost Management and Strategy

Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map

Basic Cost Management Concepts

Job Costing

Activity-Based Costing and Customer Profitability Analysis

Process Costing

Cost Allocation: Departments, Joint Products, and By-Products

Cost Estimation

Short-Term Profit Planning: Cost-Volume-Profit CVP Analysis

Strategy and the Master Budget

Strategy and the Analysis of Capital Investments

Cost Planning for the Product Life Cycle: Target Costing, Theory of Constraints, and Strategic Pricing

Operational Performance Measurement: Sales, Direct-Cost Variances, and the Role of Nonfinancial Performance Measures

Operational Performance Measurement: Indirect-Cost Variances and Resource-Capacity Management

Operational Performance Measurement: Further Analysis of Productivity and Sales

The Management and Control of Quality

Strategic Performance Measurement: Cost Centers, Profit Centers, and the Balanced Scorecard

Strategic Performance Measurement: Investment Centers and Transfer Pricing

Management Compensation, Business Analysis, and Business Valuation

Filters