Exam 6: Relevant Information for Decision Making With a Focus

The disposal value of old equipment is relevant in deciding whether to keep or replace equipment.

________ old equipment is relevant in a decision to replace equipment.

Unavoidable costs are never relevant in deciding whether to eliminate a product or department.

Brian Company manufactures a part for its production cycle.The annual costs per unit for 20,000 units of this part are as follows: Brian Company has been approached by a supplier who will sell 20,000 units of the same part for $940,000.All the fixed indirect production costs are unavoidable if Brian Company ceases production of the part. Required: A)Assuming there is no alternative use for the facilities,should Brian Company buy or make the part? B)Assume the facilities can be rented out for $100,000 per year.Should Brian Company buy the part? If so,how much money will be saved?

In deciding whether to add or delete a product,the salary of the plant manager is an ________.Assume the plant manager supervised the production of several products.

The allocation of joint costs to joint products should affect the decision to sell or process the joint products further.

Purple Corporation has a joint process that produces three products: P,G and A.Each product may be sold at split-off or processed further and then sold.Joint-processing costs for a year amount to $25,000.The production level for each product is 10,000 units.Other data follows: To maximize profits,Purple Corporation should process ________ further.

Freedom Company has three departments.Data for the most recent year are presented below: Required: A)Compute the operating income for Freedom Company. B)Compute the contribution margin for each department. C)Compute the operating income for each department. D)Which department(s)should be eliminated? Why?

The most recent income statement for the Weakville Branch of Second Union Bank is presented below: Second Union Bank is thinking about eliminating the Weakville Branch.If the branch is eliminated,Second Union Bank's operating income will ________.

A widespread problem in practice is that the decision model used by managers for ________ and the model used by their superiors in ________ are different.

Sunk cost is another term for historical cost or past cost.

Lamar Corporation has a joint process,which produces three products called A,B and C.Each product may be sold at split-off or processed further and then sold.Joint processing costs for a year are $10,000.Other relevant data are: Required: A)Which products should be processed further? Why? B)If the Lamar Company maximizes profits,what is the operating income?

Cocoa Company is considering the replacement of a machine that is presently used in production.The following data are available: Adding all five years together,the difference in total cost between the old machine and the new machine is ________.

Geiger Company is considering the replacement of equipment used in operations.The following data are available: Required: A)Prepare a cost comparison for replacing the old equipment.Use only relevant items and add the items together for the next 7 years. B)Should the old equipment be replaced?

Deuce Company currently produces 10,000 units of a key part at a total cost of $512,000 annually.Variable costs are $300,000 annually.Of the annual fixed costs,$140,000 relate specifically to this part.The remaining fixed costs are unavoidable. Another manufacturer has offered to supply the part for $48 per unit.The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of $30,000 per year.Alternatively,the facilities could be rented out at $60,000 per year.Given all of these alternatives,what is Deuce Company's lowest net relevant cost per unit for the part?

Fast Company has just decided to outsource the production of a part for a product.Assume Fast Company leaves the area of the manufacturing plant idle where it was producing the outsourced part.It has no alternative uses of the plant.What is the opportunity cost of the idle area of the manufacturing plant to Fast Company?

Manufacturing costs incurred after the split-off point are known as ________ costs.

Yeman Corporation manufactures two products,Pots and Blenders.The following annual information was gathered: Total annual fixed costs are $15,000.Total production capacity is 10,000 units per year.The maximum number of each product that can be sold in a year is 7,000 units.It takes the same amount of time to make each product.How many units of Pots should Yeman Corporation produce and sell to maximize profits in one year?

An opportunity cost is ________.

Book value is defined as ________.