Exam 6: Relevant Information for Decision Making With a Focus

Each year,Mother Company purchases 8,000 units of a part that it needs for production of its product.The supplier notified Mother Company that a price increase will take effect shortly,which will bring the price of the part to $25 per part.Mother Company is considering the use of idle facilities to produce the part.The annual production costs to produce the needed 8,000 parts are as follows: The idle facilities could also be rented out at an annual rent of $99,000.All the fixed indirect production costs are avoidable. Required: Determine if Mother Company should buy the part or produce it internally.

Joshua Company produces and sells a product that has variable costs of $7 per unit and fixed costs of $200,000 per year.If production increases from 20,000 units to 25,000 units,the unit cost will ________.

It is profitable to extend processing or to incur additional costs on a joint product if the additional revenue exceeds the joint cost.

________ costs will not continue if an ongoing operation is changed or deleted.

Which is NOT an example of outsourcing?

________ is the item that restricts or constrains the production or sale of a product.

Dummie 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 1,000 units.Other data follows: Assume Dummie Corporation processes the joint products beyond the split-off point that will maximize net income.What is Dummie Corporation's net income?

Scarce resources include labor hours.

When adding or dropping a product line,variable costs are the only relevant costs.

Garcia Company produces a part that is used in the manufacture of one of its products.The annual costs associated with the production of 5,000 units of this part are as follows: Of the fixed factory overhead costs,$72,000 are avoidable.Another company has offered to sell 5,000 units of the same part to Garcia for $105.60 per unit.The facilities currently used to make the part can be rented out to another manufacturer for $72,000 per year.What should Garcia Company do?

Which of the following costs is NOT relevant to an equipment replacement decision?

Falk Corporation has a joint process,which produces three products,Slow,Fast and Faster.Each product may be sold at split-off or processed further and then sold.Joint processing costs for a year are $30,000.Other relevant data are: Required: A)Which products should be processed further? Why? B)If the Falk Company maximizes profits,what is the operating income?

Which item is NOT relevant to the decision whether to process joint products beyond the split-off point?

Meyer Corporation manufactures two products,Pots and Roasters.The following information was gathered: Total fixed costs are $15,000.Assume Meyer Corporation can produce and sell any mix of Pots or Roasters at full capacity.Total production capacity is 10,000 units.It takes the same amount of time to produce each product.How many units of Pots and Roasters should Meyer Corporation produce and sell to maximize profits?

Stevens 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 total relevant costs to consider if the old machine is kept are ________.

What is a qualitative factor in a make-or-buy decision?

Superglue Corporation manufactures two products,Product1 and Product2.The following annual information was gathered: Total annual fixed costs are $25,000.Assume Superglue Corporation could produce and sell any mix of products at full capacity.It takes twice as long to manufacture Product1 when compared to Product2.The company has 120,000 hours of plant capacity available.How many units of Product1 and Product2 should be manufactured in a year to maximize profits?

Bird Company manufactures a part for its production cycle.The costs per unit for 38,000 units of the part are as follows: The fixed factory overhead costs are unavoidable.Assume no other use for the facilities.What is the highest price Bird Company should pay for the part from an outside supplier?

When making a decision to replace some old equipment with new equipment,the book value of the old equipment is irrelevant information.

The split-off point is the juncture in manufacturing where the joint products become individually identifiable.