Exam 11: Decision Making With a Strategic Emphasis

Orange Computer Co.is quickly becoming a major player in the personal computer market.The company currently has multiple companies producing products that go into an Orange computer.This practice of having an outside firm provide a function for Orange Computer Co.is called:

You just bought a new car for $125,000.Before you had time to get insurance,the car was wrecked.Weird Wally offers to take it off your hands for $10,000.You can then purchase a similar model for $128,000.A body-shop with an excellent reputation offers to rebuild it for $90,000 and loan you a similar model while the vehicle is being rebuilt.Once rebuilt,the body-shop claims,it will run like a new car and nobody will be able to tell the difference.What would you do from a financial point of view?

The Sand Cruiser is a takeout food store at a popular beachside resort.Teresa Texton,owner of the Sand Cruiser,was deciding how much refrigerator space to devote to four different beverages.Appropriate data on the four beverages follow: The daily contribution per foot of front shelf space for Lemonaid is:

Special orders:

The Tee Box is a golf shop inside the clubhouse of a North Carolina golf course.Derek Dunlop,owner of the Tee Box,was deciding how much shelf space to devote to four different golf ball types.Derek had a maximum front shelf space of fifteen feet to devote to the four golf ball types.He wanted a minimum of three feet and a maximum of seven feet of front shelf for each golf ball type.Appropriate data on the four ball types follow: The daily contribution per foot of front shelf space for Straight is calculated to be:

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

An effective analysis of sales mix needs to include an analysis of:

Triad Children's Center,a non-profit organization,uses relevant cost analysis to determine whether or not new services are desirable.TCC is looking at adding a new educational program for grade school children who are having difficulty with their reading and math skills.The following relevant costs will be incurred if the program is accepted: TCC estimates that a maximum of 40 children will participate in this program in the first year.If TCC decides to implement this program,funding will be received from the City Chamber of Commerce ($50,000)and a local Private University Endowment Fund ($35,000).In deciding between alternative choices for a given situation,managers usually employ a five-step process.Which of the following is not a step in the decision making process?

Zippy Company has a product which it currently sells in the market for $50 per unit.Zippy has developed a new feature which,if added to the existing product,will allow Zippy to receive a price of $65 per unit.The cost of adding this new feature is $26,000 and Zippy expects to sell 1,600 units over the next year.What is the cost or benefit of Zippy adding the feature to the product?

A useful device for solving production problems involving multiple products and limited resources is:

Walman Corp.manufactures products X,Y,and Z from a joint process.Joint costs are allocated on the basis of relative sales value at the split-off point.Additional information is as follows: Product X's sales value at split-off is:

A recent article in The McKinsey Quarterly,present a useful list of some of the ways that strategic decisions can go wrong because of human shortcomings: 1.Overconfidence 2.Loss aversion 3.Champion Bias 4.Misaligned risk aversion 5.Misaligned time horizon Required: Provide a one sentence explanation for each of the five human shortcomings in decision making.

A company owns equipment that is used to manufacture important parts for its production process.Because the equipment is repeatedly breaking down,the company plans to sell the equipment for $10,000 and to select one of the following alternatives: (1)acquire new equipment for $80,000 and continue to manufacture the part at the same variable cost,or (2)purchase the parts from an outside company at $4 per part.In the short run the company should quantitatively analyze the alternatives by comparing the variable cost of manufacturing the parts:

The Sand Cruiser is a takeout food store at a popular beachside resort.Teresa Texton,owner of the Sand Cruiser,was deciding how much refrigerator space to devote to four different beverages.Appropriate data on the four beverages follow: Teresa had a maximum front shelf space of fourteen feet to devote to the four beverages.She wanted a minimum of two feet and a maximum of seven feet of front shelf for each beverage.The contribution margin per case for Limeaid is:

The Tee Box is a golf shop inside the clubhouse of a North Carolina golf course.Derek Dunlop,owner of the Tee Box,was deciding how much shelf space to devote to four different golf ball types.Derek had a maximum front shelf space of fifteen feet to devote to the four golf ball types.He wanted a minimum of three feet and a maximum of seven feet of front shelf for each golf ball type.Appropriate data on the four ball types follow: The contribution margin per case for Spin is calculated to be:

The following unit cost information pertained to the trumpet division of WGN Music Co.and was based on monthly demand and sales of 100 units:

Variable costs will generally be relevant for decision making because they:

In deciding whether to manufacture a part or buy it from an outside vendor,a cost that is irrelevant to the short-run decision is:

Fixed costs will often be irrelevant because they:

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