Exam 11: Decision Making and Relevant Information

Palmateer Industries makes an electronic component in two departments, Machining and Assembly.The capacity per month is 30,000 units in the Machining Department and 20,000 in the Assembly Department.The only variable cost of the product is the direct material of $100 per unit.All direct material cost is incurred in the Machining Department.All other costs of operating the two departments are fixed costs.Palmateer can sell as many units of this electronic component as it produces at a selling price of $300 per unit.Required: Assuming any defective unites produced in either department must be scrapped: a.Compute the loss that occurs if a defective unit is produced in the Machining Department. b.Compute the loss that occurs if a defective unit is produced in the Assembly Department. c.How do your answers in parts (a)and (b)relate to the theory of constraints? Explain.

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. -Which of the following sets of sentences has two statements which are TRUE?

Local Steel Construction Company produces two products, steel and wood beams.Steel beams have a unit contribution margin of $200, and wood beams have a unit contribution margin of $150.The demand for steel beams exceeds Local Steel Construction Company's production capacity, which is limited by available direct labour and machine-hours.The maximum demand for wood beams is 90 per week.Management desires that the product mix should maximize the weekly contribution toward fixed costs and profits.Direct manufacturing labour is limited to 3,000 hours a week and 1,000 hours is all that the company's outdated machines can run a week.The steel beams require 120 hours of labour and 60 machine-hours.Wood beams require 150 labour hours and 120 machine-hours.Required: Formulate the objective function and constraints necessary to determine the optimal product mix.

Increasing throughput contribution and managing bottlenecks includes all of the following EXCEPT

A company would subordinate all bottleneck production to non-bottleneck machines when

Answer the following question(s)using the information below.Konrade's Engine Company manufactures part TE456 used in several of its engine models.Monthly production costs for 1,000 units are as follows: It is estimated that 10% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier.Konrade's Engine Company has the option of purchasing the part from an outside supplier at $85 per unit. -The maximum price that Konrade's Engine Company should be willing to pay the outside supplier is

Nall Custom Pool Inc.needs 10,000 units of a certain part for its manufacturing process.It can buy the part from Wholesale Pool Supplies and Equipment for $53.Nall's plant can manufacture the part for the following costs per unit: If Nall buys the part from Wholesale, 60 percent of the fixed manufacturing overhead applied will continue to be incurred.Required: What is the relevant dollar difference between making and buying the part?

A florist produces table settings for weddings.Based on an annual volume of 10,000 units it incurs $100,000 in fixed manufacturing costs.Variable costs per unit are $16 for direct materials, $3 for direct manufacturing labour, and $14 for variable factory overhead.Another company has offered to supply empty baskets for the settings for $8, with a minimum annual order of 5,000 units.If the florist accepts the offer, it will be able to reduce variable labour and overhead costs by 50 percent.The materials for the empty baskets will cost $4 if the florist assembles them.Required: a.Determine if they should make or assemble the empty baskets. b.Should they make or assemble the empty baskets if they could rent the space that the basket assembly requires for $16,000 per year to another company?

Explain what revenues and costs are relevant when choosing among alternatives.

Answer the following question(s)using the information below.Welch 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.Welch Manufacturing has excess capacity.The following per unit data apply for sales to regular customers: -What is the change in operating profits if the one-time-only special order for 1,000 units is accepted for $180 a unit by Welch?

Audio Labs collected the following information on the cost of producing 20,000 speaker units: Cartunes has offered to sell Audio 10,000 speakers for $56.00 each.Should Audio Labs make or buy the parts if the facilities remain idle when speakers are purchased? A)buy, save $16.00 per unit B)buy, save $4.00 per unit C)make, save $2.00 per unit D)make, save $4.00 per unit E)make, save $6.00 per unit

Answer the following question(s)using the information below.Specialty Wheels Ltd.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: -Decisions on product mix involving multiple products, should be based on which of the following?

Answer the following question(s)using the information below.Grant's Kitchens is approached by Ms.Tammy Wang, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers.The following per unit data apply for sales to regular customers: Grant's Kitchens has excess capacity.Ms.Wang wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit. -Other than price, what other item should Grant's Kitchens consider before accepting this one-time-only special order?

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 -If the firm accepts this job, it will have to decline a job in Vancouver that has the potential of providing a net cash inflow of $5,000 after all expenses

All fixed costs are irrelevant in relevant-cost analysis.

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's variable overhead is $50 per client hour

Collier Bicycles has been manufacturing its own wheels for its bikes.The company is currently operating at 100% capacity, and variable manufacturing overhead is charged to production at the rate of 30% of direct labour cost.The direct materials and direct labour cost per unit to make the wheels are $1.50 and $1.80, respectively.Normal production is 200,000 wheels per year.A supplier offers to make the wheels at a price of $4 each.If the bicycle company accepts this offer, all variable manufacturing costs will be eliminated, but the $42,000 of fixed manufacturing overhead currently being charged to the wheels will have to be absorbed by other products.Required: a.Prepare an incremental analysis for the decision to make or buy the wheels. b.Should Collier Bicycles buy the wheels from the outside supplier? Justify your answer.

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 -All staff members receive $1,000 per diem for travel

Econ Services has requested your services in determining the book values of the following assets, respectively. General repairs and maintenance for the automobile amounted to $4,000.Machinery maintenance included $2,000 for general upkeep.What are the book values for Auto and Machinery, respectively?

A one-time-only special order decision