Exam 11: Decision Making and Relevant Information

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

Computer Products produces two keyboards,Regular and Special.Regular keyboards have a unit contribution margin of $128,and Special keyboards have a unit contribution margin of $720.The demand for Regulars exceeds Computer Products' production capacity,which is limited by available machine-hours and direct manufacturing labour hours.The maximum demand for Special keyboards is 80 per month.Management desires a product mix that will maximize the contribution toward fixed costs and profits.Direct manufacturing labour is limited to 1,600 hours a month and machine hours are limited to 1,200 a month.The Regular keyboards require 20 hours of labour and 8 machine hours.Special keyboards require 34 labour hours and 20 machine hours. Select the appropriate linear programming objective and constraint functions designed to maximize Computer Products total contribution margin.Let R represent Regular keyboards and S represent Special keyboards.

How does a manager go about choosing which of three products to produce and sell when each product uses a single machine with a limited capacity?

Companies periodically confront decisions about discontinuing or adding branches or business segments.In order to determine the best course of action,a ________ should be performed in order to make the optimal decision.

Quantitative factors are always expressed in financial terms.

Brix,Inc. ,prepares frozen food for fast-food restaurants.It has two workstations,cooking and assembly.The cooking station is limited by the cooking time of the food.Assembly is limited by the speed of the workers.Assembly normally waits on food from cooking.Because the demand has increased in recent months to 2,800 dozen units,management is considering adding another cooking station or else having the cooks start to work earlier. The monthly cost of operating the cooking station one more hour each day is $2,400.The cost of adding another cooking station would add an average of $10 per hour. The current operating hours total eight hours a day,22 days a month.The contribution margin of the finished products is currently $8 per dozen.Inventory carrying costs average $2.00 per dozen per month.Either the extra hour or the new cooking station would increase production by 20 dozen a day,with a long-run increase of 80 dozen units in finished goods inventory to 280 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?

Answer the following question(s)using the information below. Grant's Kitchens is approached by Ms.Tammy Wang,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: Grant's Kitchens has excess capacity.Ms.Wang wants the cabinets in cherry rather than oak,so direct material costs will increase by $30 per unit. -For make-or-buy decisions,a supplier's ability to deliver the item on a timely basis is considered a(n)

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

Last year,a sailboard company produced two types of boards: a regular board for multi-purpose sailing;and,a special trick board used by experts for competitions.The regular board sells for $750 and the competition board sells for $1,350.The variable production costs are $250 and $400 respectively,and the company has $400,000 in fixed costs overall.Marketing staff have determined that the company should specialize in the competition boards only,and sell the regular boards,if at all,under a different brand name.Last year the company made a profit,selling twice as many regular boards as competition boards,resulting in a fixed cost allocation of $5.00 per board.It takes 6 hours of direct labour to make a regular board and 12 hours to make a competition board.The company worked at full capacity of 19,500 direct labour hours last year. Based on the above information only,which product or mix of products,should the company choose? Assume that any and all production can be sold.

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. -What is the change in the daily contribution margin if the change is made?

Producing more non-bottleneck output

Quiett Truck manufactures part WB23 used in several of its truck models.10,000 units are produced each year with production costs as follows: Quiett Truck has the option of purchasing part WB23 from an outside supplier at $11.20 per unit.If WB23 is outsourced,40% of the fixed costs cannot be immediately converted to other uses. Required: a.Describe avoidable costs.What amount of the WB23 production costs is avoidable? b.Should Quiett Truck outsource WB23? Why or why not? c.What qualitative factors should Quiett Truck consider before outsourcing any of the parts it currently manufactures?

Answer the following question(s)using the information below. Schmidt 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,$30,000 is avoidable. -Phil Company has offered to sell 10,000 units of the same part to Schmidt Corporation for $18 per unit.Assuming there is no other use for the facilities,Schmidt should

Answer the following question(s)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: -What should John do? What are his savings in the first year?

Insourcing is the process of producing goods and services within the firm rather than purchasing them from an outside supplier.

Answer the following question(s)using the information below. Central Medical Supply Inc. ,a manufacturer of medical testing equipment,has $240,000 worth of an obsolete line of testing equipment.The obsolete equipment can be adapted to fit another line of testing equipment at a cost of $64,000;the market value would then be $136,000.However,Tripac offered to purchase the obsolete equipment as is for $88,000. -What is the opportunity cost associated with the adaptation of the equipment to another line of testing equipment assuming Central accepts Tripac's offer?

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?

The theory of constraints focuses on shortrun maximization of throughput margin,revenues minus the cost of goods manufactured.

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

Answer the following question(s)using the information below. Central Medical Supply Inc. ,a manufacturer of medical testing equipment,has $240,000 worth of an obsolete line of testing equipment.The obsolete equipment can be adapted to fit another line of testing equipment at a cost of $64,000;the market value would then be $136,000.However,Tripac offered to purchase the obsolete equipment as is for $88,000. -Central Medical Supply Inc. ,a manufacturer of medical testing equipment,has $240,000 worth of an obsolete line of testing equipment.The obsolete equipment can be adapted to fit another line of testing equipment at a cost of $64,000;the market value would then be $136,000.However,Tripac offered to purchase the obsolete equipment as is for $88,000. What are the relevant figures above for management in their decision?