Exam 11: Decision Making and Relevant Information

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

Northern Glass Manufacturing has a current production level of 200,000 glass jars per month. Unit costs at this level are: Current monthly sales are 180,000 units. Canadian Hardware Ltd. has contacted Northern Glass Manufacturing about purchasing 15,000 units at $1.00 each. Current sales would not be affected by the special order, and variable marketing/ distributing costs would not be incurred on the special order. What is Comics Plus' change in profits if the order is accepted?

An expected value is the weighted average of the outcomes, with the probability of each outcome serving as the weight.

What would be the expected monetary value for the following data using the probability method?

Which of the following should management consider to avoid the pitfalls of relevant-cost analysis?

The purpose of evaluating performance in the decision process is to provide feedback.

Which of the following is true concerning opportunity costs?

Explain why sunk costs are not considered relevant when choosing among alternatives.

Crest Information Technologies manufactures three sizes of copiers: light usage; medium usage; and, heavy usage. Potential sales include 200 units of light; 240 units of medium; and, 200 units of heavy per month. The maximum machine-hours available is 12,000 per week. Product information is provided below. What is the full product cost for heavy usage copiers?

The gain or loss on the disposal of a machine is a relevant factor when considering replacing the machine.

All variable costs are relevant in relevant-cost analysis.

Relevant information analysis is a key aspect of making decisions.

The greatest possible contribution margin per unit of the constraining factor will ensure which of the following?

The management accountant for the Chocolate S'more Company has prepared the following income statement for the most current year: Required: a. Do you recommend discontinuing the Other Candy product line? Why or why not? b. If the Chocolate product line had been discontinued, corporate profits for the current year would have decreased by what amount?

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?

Cost items that do not change between the alternative choices involved in the decision are not relevant to the decision to be made as they will be incurred no matter which alternative is chosen.

Which of the following factors would be considered irrelevant when evaluating equipment replacement decisions?

The Gameshop manufactures specialized board games. Management is attempting to search for ways to reduce costs and is considering two alternatives for an upcoming project of special games that must be delivered to the customer in 12 months' time. Management agreed to the special project job as they have an idle plant that is scheduled for demolition 18 months from now, and either alternative will easily meet the delivery deadline. Alternative 1 requires 10 machine operators and 2.5 individuals to handle direct materials. Employee pay averages $17.50 per hour and will increase to $18.50 at the mid-point (July 1) of next year. Each employee currently works 2,500 hours but will decrease to 2,400 hours if Alternative 2 is implemented. The second proposal only requires 8.5 workers. Which of the following items of information are relevant to this decision?

When managers are faced with constraints the product line with the higher contribution margin per unit is always the best choice to make.

A company has two manufacturing facilities: one in Alberta that produces a bulk chemical that it sells to many different retailers, and one facility in Ontario that is dedicated to producing a specialty chemical for one client only. The annual profit from the single client is $150,000; and, the profit from the other facility's sales is $1,500,000, after allocating combined fixed costs based on units produced. Another company has offered to lease the Ontario facilities for $250,000. Which of the following is true?