Exam 24: Short Run Decision Analysis

Relevant costs in a sell or process-further decision include

The objective of segment profitability decisions is to identify the segments that have a negative segment margin so that managers can drop them or take corrective actions.

Irrelevant costs are costs that are

Sunk costs are omitted from decision analysis

Many management decisions are unique and hence incompatible with strict rules,steps,or timetables.

Sand Canyon Enterprises is analyzing its sales mix to find out if it is maximizing its profits.The company produces three similar items: X,Y,and Z.All three of these products are made with the same equipment,and maximum productive capacity measured in machine hours is now being used.Product line statistics are as follows: X Y Z Current production and sales (units) 105,000 158,000 95,000 Machine hours per unit 10 5 13 Selline price per unit \ 83 \ 8 \ 84 Unit variable cost \ 33 \ 26 \ 49 Unit variable selling cast \ 7 \ 3 \ 16 Determine whether the existing sales mix is the most profitable one possible.If your answer is no,offer your suggestion to improve the sales mix.Round answers to two decimal places.

Why is the book value of equipment irrelevant when considering the replacement of equipment?

The common costs shared by two or more products before they are split off are called joint costs.

Sales mix decisions should be based on the contribution margin per unit of scarce resource.

Estimated future costs that differ between alternative courses of action are termed __________ costs in management decision analysis.

What are the two steps in the analysis for a sales mix decision?

The cost of a previously purchased machine is an example of a sunk cost.

Outsourcing is the use of suppliers outside the organization to perform services or produce goods that cannot be performed or produced internally.

Joint costs that are incurred before the split-off point should be ignored while making a decision to sell or process a product further.

"Variable costs are relevant and fixed costs are irrelevant." Explain why you agree or disagree with this statement.

Outsourcing production or operating activities does not help in reducing a company's investment in physical assets and human resources.

The Dropinsky Company's management wants to determine if Division Y should be eliminated.The following data are available (in thousands). $\text { Sepmented Income Statement }$ Division Division Division Total Sales \ 200 \ 300 \ 400 \ 900 Less variable costs Contribution margin \ 120 \ 150 \ 240 \ 510 Less direct fixed costs Segment margin \ 50 \ 150 Less common fixed costs Operating income a. Assuming all direct fixed costs of Division Y are avoidable, what would be the change in operating income if Division Y were eliminated? b. Assuming one-half of the direct fixed costs of Division Y are avoidable, what would be the change in operating income if Division Y were eliminated?

Avoidable costs are important for

Which of the following typically would be considered an incremental cost?

The Norran Company needs 15,000 units of a certain part to use in its production cycle.If Norran buys the part from Waterloo Company instead of making it,Norran could not use the released facilities in another activity; thus,all of the fixed overhead applied will continue regardless of what decision is made.Accounting records provide the following data: Cost to Norran to make the part: Direct materials,$3 Direct labor,$12 Variable overhead,$13 Fixed overhead applied,$8 Cost to buy the part from the Waterloo Company,$27 In deciding whether to make or buy the part,Norran's total relevant costs to make the part are