Exam 11: Decision Making and Relevant Information

If management takes a multiple-year view in the decision model and judges success according to the current year's results, a problem will occur in the:

Smiley Face Company manufactures signs from direct materials to the finished product. This is considered:

The cost of a machine purchased last year will be irrelevant in a decision for next year.

To maximize profits, managers should produce more of the product with the greatest contribution margin per unit of the constraining resource.

Answer the following questions 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: -Which model has the greatest contribution margin per machine-hour?

Fluty Corporation manufactures a product that has two parts, A and B. It is currently considering two alternative proposals related to these parts. The first proposal is for buying Part A. This would free up some of the plant space for the manufacture of more of Part B 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 B. 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. Total variable manufacturing overhead, Part A b. Total variable manufacturing overhead, Part B c. Cost of old equipment for manufacturing Part B d. Cost of new equipment for manufacturing Part B e. Total variable selling and administrative costs f. Sales revenue of the product g. Total variable costs of assembling final products h. Total direct manufacturing materials, Part A i. Total direct manufacturing materials, Part B j. Total direct manufacturing labor, Part A k. Total direct manufacturing labor, Part B

Why is the book value of old equipment irrelevant to the equipment replacement decision?

In linear programming, the goals of management are expressed in:

The best way to avoid misidentification of relevant costs is to focus on:

For short-run product-mix decisions, maximizing contribution margin will also result in maximizing operating income.

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 labor 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 labor 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 labor and 60 machine-hours. Wood beams require 150 labor hours and 120 machine-hours. Required: Formulate the objective function and constraints necessary to determine the optimal product mix.

In a decision to keep or replace existing equipment, ________ is a FALSE statement.

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?

A sunk cost can never be relevant.

Answer the following questions using the information below: Donald'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. Donald's Engine Company has the option of purchasing the part from an outside supplier at $42.50 per unit. -If Donald's Engine Company purchases 1,000 TE456 parts from the outside supplier per month, then its monthly operating income will:

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

Answer the following questions 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:

A mathematical inequality or equality that must be appeased is known as a(n):

Feedback regarding previous actions may affect:

When replacing an old machine with a new machine, the purchase price of the old machine is a relevant cost.