Exam 11: Decision Making and Relevant Information

First Image has a plant capacity of 80,000 units per month.Unit costs at capacity are: Current monthly sales are 78,000 units at $12.60 each.Computer Output Management has contacted First Image about purchasing 2,000 units at $12.00 each.Current sales would not be affected by the special order.What is First Image's change in profits if the order is accepted?

Answer the following question(s)using the information below.Day Star collected the following information: Day Star can sell 25,000 units per year, at $80 each.The company also has an offer from a subsidiary to rent its plant facilities for $2,000,000.The fixed overhead will be incurred in each alternative, but there will be a savings of $150,000 in the fixed costs under the renting alternative. -Based on the above information only, should Day Star make or buy the product or rent its facilities out?

Chalet Ski & Patio manufactures a product that has two parts, X and Y.It is currently considering two alternative proposals related to parts X and Y.The first proposal is for buying part Y.This would free up some of the plant space for the manufacture of more of part X and assembly of the final product.The product vice-president believes the additional production of the final product can be sold at the current market price.No other changes in manufacturing would be needed.The second proposal is for buying new equipment for the production of part Y.The new equipment requires fewer workers and uses less power to operate.The old equipment has a net disposal value of zero.Required: Tell whether the following items are relevant or irrelevant for each proposal.Treat each proposal independently.a.Sales revenue of the product. b.Variable costs of assembling final products. c.Direct manufacturing materials, part X. d.Direct manufacturing materials, part Y. e.Direct manufacturing labour, part X. f.Direct manufacturing labour, part Y. g.Variable manufacturing overhead, part X. h.Variable manufacturing overhead, part Y.i.Cost of old equipment for manufacturing Y.j.Cost of new equipment for manufacturing Y.k.Variable selling and administrative costs.

Opportunity cost is the contribution to income that is recognized through the use of limited resources available in the best alternative.

Which of the following represents a qualitative factor?

Answer the following question(s)using the information below.Mable's Engine Company manufactures part Z92 used in several of its engine models.Monthly production costs for 1,000 units are as follows: Mable's Engine Company has the option of purchasing the part from an outside supplier at $61 per unit.It is estimated that all of the fixed overhead costs assigned to Z92 will remain if the company purchases Z92 from the outside supplier. -Unit cost data can mislead decisions by including irrelevant costs or by

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: -The cost NOT relevant for this decision is the

In linear programming a mathematical inequality or equality that must be appeased is known as

Answer the following question(s)using the information below.Mable's Engine Company manufactures part Z92 used in several of its engine models.Monthly production costs for 1,000 units are as follows: Mable's Engine Company has the option of purchasing the part from an outside supplier at $61 per unit.It is estimated that all of the fixed overhead costs assigned to Z92 will remain if the company purchases Z92 from the outside supplier. -If Mable's Engine Company accepts the offer from the outside supplier, the monthly avoidable costs (costs that will no longer be incurred)total

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: -If capacity is constrained by machine hours then which model(s)is the most profitable to produce?

Lewis Auto Company manufactures a part for use in its production of automobiles.When 10,000 items are produced, the costs per unit are: Monty Company has offered to sell Lewis Auto Company 10,000 units of the part for $120 per unit.The plant facilities could be used to manufacture another part at a savings of $180,000 if Lewis Auto accepts the supplier's offer.In addition, $20 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 Lewis Auto Company? By how much?

Linear programming is a tool that maximizes total contribution margin of a mix of products with multiple constraints.

Ralph'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: 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 constrained capacity, which model is the most profitable to produce? Why? e.How can Ralph encourage her sales people to promote the more profitable model?

Ted owns a small body shop.His major costs include labour, parts, and rent.In the decision making process, these costs are always considered to be

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: -Last year, a sailboard company produced two types of boards: a regular board for multi-purpose sailing; and, a special trick board used by experts for competitions.The regular board sells for $750 and the competition board sells for $1,350.The variable production costs are $250 and $400 respectively, and the company has $400,000 in fixed costs overall.Marketing staff have determined that the company should specialize in the competition boards only, and sell the regular boards, if at all, under a different brand name.Last year the company made a profit, selling twice as many regular boards as competition boards, resulting in a fixed cost allocation of $5.00 per board.It takes 6 hours of direct labour to make a regular board and 12 hours to make a competition board.The company worked at full capacity of 19,500 direct labour hours last year.Based on the above information only, which product or mix of products, should the company choose? Assume that any and all production can be sold.

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. -Lynn Valley Corporation currently manufactures a subassembly for its main product.The costs per unit are as follows: Reliance Corp has contacted Lynn Valley with an offer to sell them 5,000 of the subassemblies for $44.00 each.Lynn Valley will eliminate $50,000 of fixed overhead if it accepts the proposal.Should Omark make or buy the subassemblies? What is the difference between the two alternatives?

Southwestern Company needs 1,000 motors in its manufacture of automobiles.It can buy the motors from Jinx Motors for $1,250 each.Southwestern's plant can manufacture the motors for the following costs per unit: If Southwestern buys the motors from Jinx, 30% of the fixed manufacturing overhead applied will be avoided.Required: a.Should the company make or buy the motors? b.What additional qualitative factors should Southwestern consider in deciding whether or not to make or buy the motors?

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 is also sending the same four staff members to Toronto, for a two week engagement upon their return from this trip.The firm's cost of this trip will be $10,000

Answer the following question(s)using the information below.Day Star collected the following information: Day Star can sell 25,000 units per year, at $80 each.The company also has an offer from a subsidiary to rent its plant facilities for $2,000,000.The fixed overhead will be incurred in each alternative, but there will be a savings of $150,000 in the fixed costs under the renting alternative. -What production level is required for Day Star to be indifferent between making or buying the part if $260,000 of fixed costs can be eliminated by buying?

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 will pay $60 next month for this year's membership in the Canadian Consultants Society for each professional staff member