Exam 11: Decision Making and Relevant Information

Kirkland Company manufactures a part for use in its production of hats.When 10,000 items are produced,the costs per unit are: Mike Company has offered to sell to Kirkland Company 10,000 units of the part for $6.00 per unit.The plant facilities could be used to manufacture another item at a savings of $9,000 if Kirkland accepts the offer.In addition,$1.00 per unit of fixed manufacturing overhead on the original item would be eliminated. Required: a.What is the relevant per unit cost for the original part? b.Which alternative is best for Kirkland Company? By how much?

A decision as to whether to insource or outsource is a(n)

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?

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?

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

Which of the following costs are never relevant in the decision-making process?

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

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?

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 computer 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 computer service.

Answer the following question(s)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 then which model is the most profitable to produce?

Econ Services has requested your services in determining the book values of the following assets,respectively. General repairs and maintenance for the automobile amounted to $4,000.Machinery maintenance included $2,000 for general upkeep. What are the book values for Auto and Machinery,respectively?

Electrical Engineering Equipment Ltd.purchased a machine for $100,000;current accumulated amortization totals $40,000.Management is contemplating the purchase of a new machine for $120,000.Current disposal of the old machine would cost $65,000. What is the correct category for each item?

The theory of constraints analyzes fixed costs and considers short-run costs to be variable costs.

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

Jamboree Manufacturing Ltd.produces two products,steel and wood beams.Steel beams have a unit contribution margin of $400,and wood beams have a unit contribution margin of $300.The demand for steel beams exceeds their production capacity,which is limited by available direct labour and machine hours.The maximum demand for wood beams is 60 per week.Management desires that the product mix should maximize the weekly contribution toward fixed costs and profits. Direct manufacturing labour is limited to 2,700 hours a week and 900 hours is all that the company's outdated machines can run a week.The steel beams require 180 hours of labour and 90 machine hours.Wood beams require 270 labour hours and 60 machine hours. Required: Formulate the linear programming objective function and constraints necessary to determine the optimal product mix.

Answer the following question(s)using the information below. Welch Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers.Welch Manufacturing has excess capacity.The following per unit data apply for sales to regular customers: -What is the contribution margin per unit?

Clinton Company sells two items,product A and product B.The company is considering dropping product B.It is expected that sales of product A will increase by 40% as a result.Dropping product B will allow the company to cancel its monthly equipment rental costing $100 per month.The other existing equipment will be used for additional production of product A.One employee earning $200 per month can be terminated if product B production is dropped.Clinton's other fixed costs are allocated and will continue regardless of the decision made.A condensed,budgeted monthly income statement with both products follows: Required: Prepare an incremental analysis to determine the financial effect of dropping product B.

Answer the following question(s)using the information below. Helmer's Rockers manufactures two models,Standard and Premium.Weekly demand is estimated to be 100 units of the Standard Model and 70 units of the Premium Model.The following per unit data apply: -If there are 496 machine-hours available per week,how many rockers of each model should Jim Helmer produce to maximize profits?

The management accountant for the Chocolate S'more Company has prepared the following income statement for the most current year: * The company pays for the entire space and allocates based on sq.metres used. 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?

Anchor Sign Company manufactures signs from direct materials to the finished product.This is an example of which of the following?