Exam 11: Decision Making and Relevant Information

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: -Boyd Tool Company is a tool manufacturer.Production capacity is 3,000 units per month; however, they are considering alternative ways to increase capacity to 3,500 units.One of the alternatives involves purchasing new equipment.In this alternative, there are two choices: machine A will provide increased capacity of 4,000 units per month, with unit costs of $14 at capacity; and, machine B will increase capacity to 3,600 units per month with unit costs of $15 at capacity.Both machines are adequate since Boyd's does not intend to go beyond the 3,500 units per month level for the foreseeable future.Relevant information for this decision includes

Brix, Inc., prepares frozen food for fast-food restaurants.It has two workstations, cooking and assembly.The cooking station is limited by the cooking time of the food.Assembly is limited by the speed of the workers.Assembly normally waits on food from cooking.Because the demand has increased in recent months to 2,800 dozen units, management is considering adding another cooking station or else having the cooks start to work earlier.The monthly cost of operating the cooking station one more hour each day is $2,400.The cost of adding another cooking station would add an average of $10 per hour.The current operating hours total eight hours a day, 22 days a month.The contribution margin of the finished products is currently $8 per dozen.Inventory carrying costs average $2.00 per dozen per month.Either the extra hour or the new cooking station would increase production by 20 dozen a day, with a long-run increase of 80 dozen units in finished goods inventory to 280 dozen.Required: a.What is the total production per month if the change is made? c.What course of action would you recommend?

Quantitative factors are relevant, and qualitative factors are irrelevant, in making outsourcing decisions.

Insourcing is the process of producing goods and services within the firm rather than purchasing them from an outside supplier.

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 -Last year the firm paid $4,000 to make improvements in its 5-year leasehold on its offices

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 no other use of their facilities, the highest price that Schmidt should be willing to pay for 10,000 units of the part is

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. -If Konrade's Engine Company accepts the offer from the outside supplier, the monthly avoidable costs (costs that will no longer be incurred)total

Hackerott Camera is considering eliminating Model AE1 from its camera line because of losses over the past quarter.The past three months of information for model AE1 is summarized below: Manufacturing costs: Support costs are 70% variable and the remaining 30% is depreciation of special equipment for model AE1 that has no resale value.Should Hackerott Camera eliminate Model AE1 from its product line? Why or why not?

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 daily capacity of the pasting workstation based on a ten hour day?

Outsourcing is risk free to the manufacturer because the supplier now has the responsibility of producing the part.

Precision Sewing Company incorporates the services of Rosie's Sewing.Precision purchases pre-cut dresses from Rosie's.This is primarily known as

A local accounting firm has offered to do all the billings and collections of a general practitioner.The annual fee will be $12,000.The service will replace the part-time bookkeeper who works for $12 an hour, 10 hours a week.Because outsourcing accounting activities will take place away from the office, the doctor estimates that she will have one additional hour a week to see patients.Normally she sees four patients an hour with an average visit fee of $100.The office is open 50 weeks a year.Since the accounting service will maintain all records in its office, the doctor will no longer need to rent storage space for the office files.The storage space rents for $150 a month.Required:Determine whether or not the doctor should accept the offer to use the accounting service.

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. -For make-or-buy decisions, a supplier's ability to deliver the item on a timely basis is considered a(n)

When choosing between two alternatives, costs that do not differ between the two alternatives can be considered to be irrelevant to that decision.

For short-term pricing decisions, what costs are relevant when there is available surplus capacity? When there is no available surplus capacity?

Lovejoy's Cake Shop makes three types of cakes: White, Chocolate, and Swirl on one assembly line that has a limit of 400 labour-hours per week.Lovejoy can sell all the cakes it can make under current operating capacity.Manufacturing information per cake for each product is as follows: Required: Determine the total weekly contribution margin when all labour-hours are allotted to the product with the highest: a.Unit selling price. b.Unit contribution margin. c.Contribution per labour-hour.

Computer Products produces two keyboards, Regular and Special.Regular keyboards have a unit contribution margin of $128, and Special keyboards have a unit contribution margin of $720.The demand for Regulars exceeds Computer Products' production capacity, which is limited by available machine-hours and direct manufacturing labour hours.The maximum demand for Special keyboards is 80 per month.Management desires a product mix that will maximize the contribution toward fixed costs and profits.Direct manufacturing labour is limited to 1,600 hours a month and machine hours are limited to 1,200 a month.The Regular keyboards require 20 hours of labour and 8 machine hours.Special keyboards require 34 labour hours and 20 machine hours.Select the appropriate linear programming objective and constraint functions designed to maximize Computer Products total contribution margin.Let R represent Regular keyboards and S represent Special keyboards.

Lang Manufacturing Company manufactures a part for use in its production of recreation vehicles.When 10,000 items are produced, the costs per unit are: Gehen Company has offered to sell Lang Manufacturing Company 10,000 units of the part for $130 per unit.The plant facilities could be used to manufacture another part at a savings of $150,000 if Lang Manufacturing accepts the supplier's offer.In addition, $10 per unit of fixed manufacturing overhead on the original part would be eliminated.Required: a.What is the relevant per unit cost for the original part? b.Which alternative is best for Lang Manufacturing Company? By how much?

The theory of constraints is more useful than activity-based costing in long-run decisions.

Norton's Mufflers 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: Required: a.For each model, compute the contribution margin per unit. b.For each model, compute the contribution margin per machine-hour. c.If there is excess capacity, which model is the most profitable to produce? Why? d.If there is a machine breakdown, which model is the most profitable to produce? Why? e.How can Norton encourage her sales people to promote the more profitable model?