Exam 11: Decision Making and Relevant Information

Answer the following question(s)using the information below.Central Medical Supply Inc., a manufacturer of medical testing equipment, has $240,000 worth of an obsolete line of testing equipment.The obsolete equipment can be adapted to fit another line of testing equipment at a cost of $64,000; the market value would then be $136,000.However, Tripac offered to purchase the obsolete equipment as is for $88,000. -For make-or-buy decisions, relevant costs include

Answer the following question(s)using the information below.Helmer's Rockers manufactures two models, Standard and Premium.Weekly demand is estimated to be 100 units of the Standard Model and 70 units of the Premium Model.The following per unit data apply: -The contribution per machine-hour is

Past costs that are unavoidable and unchangeable are known as

Which of the following is TRUE concerning opportunity costs?

Comics Plus has a current production level of 200,000 comics per month.Unit costs at this level are: Current monthly sales are 180,000 units.Printers Ltd.has contacted Comics Plus about purchasing 15,000 units at $1.00 each.Current sales would not be affected by the special order, and variable marketing/distributing costs would not be incurred on the special order.What is Comics Plus' change in profits if the order is accepted?

The total cost difference between two separate alternatives in a decision making process is the net relevant cost.

Kirkland Company manufactures a part for use in its production of hats.When 10,000 items are produced, the costs per unit are: Mike Company has offered to sell to Kirkland Company 10,000 units of the part for $6.00 per unit.The plant facilities could be used to manufacture another item at a savings of $9,000 if Kirkland accepts the offer.In addition, $1.00 per unit of fixed manufacturing overhead on the original item would be eliminated.Required: a.What is the relevant per unit cost for the original part? b.Which alternative is best for Kirkland Company? By how much?

Answer the following question(s)using the information below.Helmer's Rockers manufactures two models, Standard and Premium.Weekly demand is estimated to be 100 units of the Standard Model and 70 units of the Premium Model.The following per unit data apply: -If there are 496 machine-hours available per week, how many rockers of each model should Jim Helmer produce to maximize profits?

The theory of constraints focuses on shortrun maximization of throughput margin, revenues minus the cost of goods manufactured.

Which of the following would not be considered in a make or buy decision?

Answer the following question(s)using the information below.Quick Shop Printing has two workstations, cutting and pasting.The cutting station is limited by the speed of operating the cutting machine.Pasting is limited by the speed of the workers.Pasting normally waits on work from cutting.Each department works an eight-hour day.If cutting begins work two hours earlier than pasting each day, the two departments generally finish their work at about the same time.Not only does this eliminate the bottleneck, but it increases finished units produced each day by 80 units.All units produced can be sold.The cost of operating the cutting department two more hours each day is $800.The contribution margin of the finished products is $3 each.Inventory carrying costs are $0.20 per unit per day. -What is the change in the daily contribution margin if the change is made?

Producing more non-bottleneck output increases throughput contribution.

A machine has been identified as a bottleneck and the source of the constraint for a manufacturing company that has multiple products and multiple machines.List and describe five ways the company can overcome the bottleneck.

A client in another province needs immediate help in solving a personnel training problem in the shipping department.Match each activity on the basis of its relationship with this consulting engagement.Items may have multiple classifications. A)Relevant Costs B)Sunk, Irrelevant Costs C)Opportunity, Irrelevant Costs D)Opportunity Cost E)Irrelevant Costs F)Sunk Costs -The firm has a $2,000 maintenance contract on its telecommunication system for the current year

Jansen Industries is considering replacing a machine that is presently used in its production process.The following information is available: Which of the information provided in the table is irrelevant to the replacement decision?

Producing more non-bottleneck output

Answer the following question(s)using the information below.John's 8-year-old Chevrolet Trail Blazer requires repairs estimated at $6,000 to make it roadworthy again.His wife, Sherry, suggested that he should buy a 5-year-old used Jeep Grand Cherokee instead for $6,000 cash.Sherry estimated the following costs for the two cars: -Koch Brothers purchased a new production machine for $200,000.It is capable of producing 400,000 units over its useful life, thus the manufacturer's salesperson claimed the unit cost would only be $0.50.Koch's own engineers recommended that the company acquire a machine that would have a unit cost of production of no more than $0.48 (with a $0.03 variance).A competitor of the vendor, who also was trying to sell Koch some equipment, claimed that the $0.50 is understated by $0.04 per unit.The total anticipated demand over the asset's useful life is 300,000 units.Relevant information includes

For one-time-only special orders, variable costs may be relevant but not fixed costs.

Jamboree Manufacturing Ltd.produces two products, steel and wood beams.Steel beams have a unit contribution margin of $400, and wood beams have a unit contribution margin of $300.The demand for steel beams exceeds their production capacity, which is limited by available direct labour and machine hours.The maximum demand for wood beams is 60 per week.Management desires that the product mix should maximize the weekly contribution toward fixed costs and profits.Direct manufacturing labour is limited to 2,700 hours a week and 900 hours is all that the company's outdated machines can run a week.The steel beams require 180 hours of labour and 90 machine hours.Wood beams require 270 labour hours and 60 machine hours.Required: Formulate the linear programming objective function and constraints necessary to determine the optimal product mix.

Northern Glass Manufacturing has a current production level of 200,000 glass jars per month.Unit costs at this level are: Current monthly sales are 180,000 units.Canadian Hardware Ltd.has contacted Northern Glass Manufacturing about purchasing 15,000 units at $1.00 each.Current sales would not be affected by the special order, and variable marketing/distributing costs would not be incurred on the special order.What is Comics Plus' change in profits if the order is accepted?