Exam 11: Decision Making and Relevant Information

Collier Bicycles has been manufacturing its own wheels for its bikes.The company is currently operating at 100% capacity,and variable manufacturing overhead is charged to production at the rate of 30% of direct labour cost.The direct materials and direct labour cost per unit to make the wheels are $1.50 and $1.80,respectively.Normal production is 200,000 wheels per year. A supplier offers to make the wheels at a price of $4 each.If the bicycle company accepts this offer,all variable manufacturing costs will be eliminated,but the $42,000 of fixed manufacturing overhead currently being charged to the wheels will have to be absorbed by other products. Required: a.Prepare an incremental analysis for the decision to make or buy the wheels. b.Should Collier Bicycles buy the wheels from the outside supplier? Justify your answer.

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

Answer the following question(s)using the information below. Quick Shop Printing has two workstations,cutting and pasting.The cutting station is limited by the speed of operating the cutting machine.Pasting is limited by the speed of the workers.Pasting normally waits on work from cutting.Each department works an eight-hour day.If cutting begins work two hours earlier than pasting each day,the two departments generally finish their work at about the same time.Not only does this eliminate the bottleneck,but it increases finished units produced each day by 80 units.All units produced can be sold.The cost of operating the cutting department two more hours each day is $800.The contribution margin of the finished products is $3 each.Inventory carrying costs are $0.20 per unit per day. -Which of the following statements is TRUE?

Comics Plus has a current production level of 200,000 comics per month.Unit costs at this level are: Current monthly sales are 180,000 units.Printers Ltd.has contacted Comics Plus 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?

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

Nall Custom Pool Inc.needs 10,000 units of a certain part for its manufacturing process.It can buy the part from Wholesale Pool Supplies and Equipment for $53.Nall's plant can manufacture the part for the following costs per unit: If Nall buys the part from Wholesale,60 percent of the fixed manufacturing overhead applied will continue to be incurred. Required: What is the relevant dollar difference between making and buying the part?

Explain what revenues and costs are relevant when choosing among alternatives.

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

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: -The contribution per machine-hour is

The management accountant for the Awesome Candy 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. 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?

Scott is the new manager of the credit card department of a large bank.One of his first changes,directed by the president,was to reorganize the activities of the department.He is reluctant to start the reorganization without including a comprehensive report from accounting about the current costs of operations and possible costs of changes. Required: Explain how the decision process model can assist the manager and discuss the steps in the decision process model that might be taken to ensure an orderly decision process.

The theory of constraints is more useful than activity-based costing in long-run decisions.

All fixed costs are irrelevant in relevant-cost analysis.

Are relevant revenues and relevant costs the only information needed by managers to select among alternatives? Explain using examples.

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

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?

Aunt Lydia's Cookies,Inc. ,prepares frozen gourmet cookies for shipment to upscale grocery stores as well as mailing to web and catalog customers.The company has two workstations,cooking and distribution.The cooking station is limited by the cooking time of the food.Distribution is limited by the speed of the workers.Distribution normally waits on food from cooking.Because the demand has increased in recent months to 4,000 dozen cookies,management is considering adding another oven in the cooking station or else having the cooks start to work earlier.The cost of adding another oven in the cooking station would add an average of $8 per hour.The monthly cost of operating the cooking station one more hour each day is $1,500. The current operating hours total eight hours a day,24 days a month.The contribution margin of the finished products is currently $2 per dozen.Inventory carrying costs average $0.50 per dozen per month.Either the extra hour or the new oven at the cooking station would increase production by 50 dozen a day,with a long-run increase of 100 dozen units in finished goods inventory to 500 dozen. Required: a.What is the total production per month if the change is made? b.What is the current monthly contribution margin,and the expected monthly product contribution for both of the possible changes? Assume long-run production equals sales. c.What course of action would you recommend?

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

Employee morale at Bedland Inc.is very high.This type of information is known as

Answer the following question(s)using the information below. Speedy Dress Manufacturing has two workstations,cutting and finishing.The cutting station is limited by the speed of operating the cutting machine.Finishing is limited by the speed of the workers.Finishing normally waits for work from cutting.Each department works an eight-hour day.If cutting begins work two hours earlier than finishing each day,the two departments generally finish their work at about the same time.Not only does this eliminate the bottleneck,but also it increases finished units produced each day by 160 units.All units produced can be sold even though the change increases inventory stock by 20% from 400 units.The cost of operating the cutting department two more hours each day is $1,600.The contribution margin of the finished products is $6 each.Inventory carrying costs are $0.40 per unit per day. -The Glass Shop,a manufacturer of large windows,is experiencing a bottleneck in its plant.Setup time at one of its workstations has been identified as the culprit.A manager has proposed a plan to reduce setup time at a cost of $72,000.The change will result in 8,000 additional windows.The selling price per window is $18,direct labour costs are $3 per window,and the cost of direct materials is $5 per window.Assume all units produced can be sold.The change will result in an increase in the throughput contribution of