Exam 11: Decision Making and Relevant Information

Favata Corporation manufactures two products, AA and CC. The following information was available: If Favata Corporation could produce and sell either 10,000 units of AA or 5,000 units of CC at full capacity, it should produce and sell:

Top management faces a persistent challenge to make sure that the performance evaluation model of lower level managers is:

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 It currently has a cozy appeal with an outdated decor that is still in good condition, menus and carpet that need to be replaced anyway, and loyal customers.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

Answer the following questions using the information below: Piels 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, $60,000 is avoidable. -Conners Company has offered to sell 10,000 units of the same part to Piels Corporation for $36 per unit. Assuming there is no other use for the facilities, Schmidt should:

Depreciation allocated to a product line is a relevant cost when deciding to discontinue that product.

Altec Company has relevant costs of $40 per unit to manufacture 1,000 units of Part A. A current supplier offers to make Part A for $35 per unit. If capacity is constrained, the opportunity cost of buying Part A from the supplier is:

Which of the following minimize the risks of outsourcing?

Costs that CANNOT be changed by any decision made now or in the future are:

When deciding to accept a one-time-only special order from a wholesaler, management should do all of the following EXCEPT:

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 a machine breakdown, which model is the most profitable to produce? Why? e. How can Ralph encourage her sales people to promote the more profitable model?

In a make-or-buy decision when there are alternative uses for capacity, the opportunity cost of idle capacity is irrelevant.

All variable costs are relevant and all fixed costs are irrelevant.

In a decision as to whether or not to drop a product, fixed costs that have been allocated to that product are generally not relevant.

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: -If there is excess capacity, which model is the most profitable to produce?

Opportunity cost is the contribution to operating income that is forgone by NOT using a limited resource in its next-best alternative use.

Which of following are risks of outsourcing the production of a part?

Full cost of the product is:

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: -If there is a machine breakdown, which model is the most profitable to produce?

Answer the following questions using the information below: Heck's Kitchens is approached by Mr. Louis Cifer, 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: Heck's Kitchens has excess capacity. Mr. Cifer wants the cabinets in cherry rather than oak, so direct material costs will increase by $50 per unit. -An example of a quantitative factor for the decision-making process is:

Product mix decisions: