Exam 11: Decision Making With a Strategic Emphasis

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 Limeaid is:

A special order is:

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 price of $190,000.If Quinta does not purchase these parts from the subcontractor it must produce them in-house with the following costs:

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 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 contribution margin per case for Lemonaid is:

Motor Corp.manufactures machine parts for boat engines.The CEO,James Hamilton,was considering an offer from a subcontractor who would provide 3,000 units of product AB100 for Hamilton for a price of $230,000.If Motor Corp.does not purchase these parts from the subcontractor it must produce them in-house with the following costs:

Joe Green Enterprises has met all production requirements for the current month and has an opportunity to produce additional units of product with its excess capacity.Unit selling prices and costs for three models of one of its product lines are as follows:

Done on a regular basis,relevant cost pricing in special order decisions can erode normal pricing policies and lead to:

Using sales revenue as a basis for commissions 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 Durable is calculated to be:

Lyman Company has the opportunity to increase annual credit sales $100,000 by selling to a new,riskier group of customers.The expenses of collecting credit sales are expected to be 15 percent of credit sales.The company's manufacturing and selling expenses are 70 percent of sales,and its effective tax rate is 40 percent.If Lyman should accept this opportunity,the company's after tax profits would increase by:

Luther Company,located in Largeville,Kansas,is a retailer of durable,light-weight luggage products known for their high-quality and innovation.Recently,the firm conducted a relevant cost analysis of one of its product lines that has only two products,Kryptonite and Meteoerite.The sales for Meteorite are decreasing and the purchase costs are increasing.The firm is considering dropping Meteorite products and only selling Kryptonite.Luther Company allocates fixed costs to products on the basis of sales revenue.When the president of Luther saw the income statement,he agreed that Meteorite should be dropped.If this is done,sales of Kryptonite are expected to increase by 15% next year;the firm's cost structure will remain the same.

Marchant Industries,which produces heating blankets,has been trying to get a customer,Home Select,Inc. ,to purchase a special order of heating blankets in order to keep the plant busy at a time when production is expected to be slower than normal.Home Select has agreed,but only if the price is reduced to $42.Listed below are some data prepared by Marchant.The special order can be produced within available capacity,and will be made in a single batch.

The make-or-buy decision can apply to decisions about all of the following except:

The value chain analysis used in connection with the make or buy decision often leads a firm to make use of:

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.

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 Valters produces part PQ107,he would also have a retooling and design cost of $9,800.The relevant costs of producing 2,400 units of product PQ107 are:

Operating at or near full capacity will require a firm considering a special order to recognize potentially the:

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 contribution margin per case for Ginger Ale is:

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 Ginger Ale is: