Exam 11: Decision Making With a Strategic Emphasis

Apex Manufacturing Corporation is considering a significant shift in the mix of products it manufactures. The costs associated with current and proposed production schedules are shown below by category: The proposed production will require a one-time purchase of equipment costing $180,000. No change in selling or administrative cost from their present levels is expected. Required: 1. What type of relevant cost analysis would be appropriate in this situation (special order, make-lease-buy, etc.)? Why? 2. What role does depreciation and equipment purchase cost play in this decision? 3. What is the minimum amount that revenue would have to increase per month to justify the proposed production schedule? Ignore taxes and the time value of money

The shadow price in a linear programming model is:

In deciding whether to drop or keep a product line, all of the following are relevant to the decision EXCEPT:

The costs described in situations 1 and 4 above are:

Sunk costs:

The mathematical tool used to determine the optimum short-term product (or service) mix is:

The best way to allocate scare resources to attain a specific objective, such as the maximization of operating income, is:

For short-run product-mix decisions, relevant costs (for the seller) include short-run _________ costs plus any ____________ costs.

Special sales orders:

Based solely on a relevant cost analysis, which of the three products should be manufactured by Walman beyond the split-off point?

Quirch Inc. manufactures machine parts for aircraft engines. The CEO, Chucky Valters, was considering an offer from a subcontractor who would provide 2,400 units of product PQ107 for Valters for a price of $150,000. If Quirch does not purchase these parts from the subcontractor it must produce them in-house with the following costs: In addition to the above costs, if Quirch produces part PQ107, it would also have a retooling and design cost of $9,800. The relevant costs of producing 2,400 units of product PQ107 are:

Copeland Inc. produces X-547 in a joint manufacturing process. The company is studying whether to sell X-547 at the split-off point or upgrade the product to become Xylene. The following information has been gathered: (1) Selling price per pound of X-547. (2) Variable manufacturing costs of the upgrade process. (3) Avoidable fixed costs of the upgrade process. (4) Selling price per pound of Xylene. (5) Joint manufacturing costs to produce X-547. Which of the items should be reviewed when making the upgrade decision?

In a manufacturing environment the best short-term profit-maximizing approach would be to:

The costs described in situations I and IV above are:

A boat, costing $108,000 and uninsured, was wrecked the very first day it was used. It can either be disposed of for $11,000 cash and be replaced with a similar boat costing $110,000, or rebuilt for $98,000 and be brand new as far as operating characteristics and looks are concerned. A relevant cost analysis of the decision to replace the boat shows:

A cost is not relevant for decision making if it:

In deciding whether to accept or a reject a special sales order, which of the following costs are likely relevant to the decision?

The decision to keep or drop products or services involves strategic consideration of all the following except:

Southern Company packages and sells nuts in cans. Pecans, cashews, Brazil nuts, hazelnuts, and peanuts are packaged individually as well in combinations and mixtures. Southern wants to package the nuts so that it can maximize its operating profit while considering market demand. In addition, there are limited supplies for some types of nuts. The technique that Southern should employ is:

One of the behavioral problems with relevant cost analysis is the overemphasis on: