Exam 11: Decision Making and Relevant Information

Scott is the new manager of the credit card department of a large bank.One of his first changes, directed by the president, was to reorganize the activities of the department.He is reluctant to start the reorganization without including a comprehensive report from accounting about the current costs of operations and possible costs of changes.Required: Explain how the decision process model can assist the manager and discuss the steps in the decision process model that might be taken to ensure an orderly decision process.

Explain why sunk costs are not considered relevant when choosing among alternatives.

Bid prices and costs that are relevant for regular orders are the same costs that are relevant for one-time-only special orders.

All variable costs are relevant in relevant-cost analysis.

Answer the following question(s)using the information below.Schmidt Corporation produces a part that is used in the manufacture of one of its products.The costs associated with the production of 10,000 units of this part are as follows: Of the fixed factory overhead costs, $30,000 is avoidable. -Assuming accepting the offer creates excess facility capacity that can be used to produce 2,000 units of another product that has a unit selling price of $24, variable costs of $12, and fixed cost allocation of $3.What is the highest price that Schmidt should be willing to pay Phil Company for 10,000 units of the part?

Parker and Spitzer Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers.The following per unit data apply for sales to regular customers: Parker and Spitzer Manufacturing has excess capacity.Required: a.What is the full cost of the product per unit? b.What is the contribution margin per unit? c.Which costs are relevant for making the decision regarding this one-time-only special order? Why? d.For Parker and Spitzer Manufacturing, what is the minimum acceptable price of this one-time-only special order? e.For this one-time-only special order, should Parker and Spitzer Manufacturing consider a price of 200 per unit? Why or why not?

When considering a project that will require production using otherwise idle resources, which of the following are TRUE?

Which of the following statements related to the theory of constraints is/are TRUE?

Answer the following question(s)using the information below.Braun's Brakes manufactures three different product lines, Model X, Model Y, and Model Z.Considerable market demand exists for all models.The following per unit data apply: -If there is excess capacity then which model(s)is the most profitable to produce?

Employee morale at Bedland Inc.is very high.This type of information is known as

Omark Corporation currently manufactures a subassembly for its main product.The variable costs per unit are $48, in addition to a $6 charge based on estimated selling expenses.R-Corp has contacted Omark with an offer to sell them 5,000 of the subassemblies for $44.00 each.Omark will eliminate $50,000 of fixed overhead if it accepts the proposal.What is increase or decrease in profit from accepting the offer?

A restaurant is deciding whether it wants to update its image or not.It currently has a cozy appeal with loyal customers.The outdated décor that is still in good condition; menus and carpet need to be replaced.Required: Identify for the restaurant management: a.those costs that are relevant to this decision b.qualitative considerations.

If Harry Inc.doesn't use one of its limited resources in the best possible way, the lost contribution to income could be called

Divisional revenues which remain at the same level from year to year are known as relevant revenues.

When managers are faced with constraints the product line with the higher contribution margin per unit is always the best choice to make.

A decision as to whether to insource or outsource is a(n)

The variation in total costs between two alternatives is known as

Hasselhoff Camera is considering eliminating Model EOS1 from its camera line because of losses over the past quarter.The past three months of information for model EOS1 is summarized below: Manufacturing costs: Support costs are 70% variable and the remaining 30% is depreciation of special equipment for model EOS1 that has no resale value.Should Hasselhoff Camera eliminate Model EOS1 from its product line? Why or why not?

Kilkenny Manufacturing Ltd.produces two products, lawn mowers and weed wackers.Lawn mowers have a unit contribution margin of $80, and weed wackers have a unit contribution margin of $35.The demand for lawn mowers exceeds their production capacity, which is limited by available direct labour and machine hours.The maximum demand for week wackers is 500 per week.Management desires that the product mix should maximize the weekly contribution toward fixed costs and profits.Direct manufacturing labour is limited to 900 hours a week and 700 hours is all that the company's outdated machines can run a week.The lawn mowers require 1.0 hours of labour and 0.5 machine hour.Weed wackers require 0.5 labour hours and 0.25 machine hours.Required: Formulate the linear programming objective function and constraints necessary to determine the optimal product mix.

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 -Current year's amortization of the firm's computer system is $15,000