Exam 24: Short Run Decision Analysis

Qualitative data as well as quantitative data are useful in the decision process.

The normal selling price of our product is $42 per unit.The costs of production are direct materials,$8; direct labor,$6; variable overhead,$7; and fixed overhead,$4 (based on normal capacity).The company has received a special order for 10,600 units at a unit sales price of $23.There is ample unused capacity to fill the order and $1 per unit will be incurred for additional freight costs.If the order is accepted,operating income will

Special order decisions are the decisions about whether to accept or reject special orders at prices above the normal market prices.

Only large corporations benefit from capital investment analysis.

The point where joint products or services become separable and identifiable is known as split-off point.

Sunk costs are not relevant for decisions based on incremental analysis.

Identify each of the following as quantitative or qualitative factors in the decision making of a tax preparation firm: a. Timeliness ____________________ b. Number of clients _____________________ c. Competition from other firms ____________________ d. Cost of computer time _____________________ e. Service quality _____________________

Many of the decisions that managers make do not affect their organization's activities in the short run.

Outsourcing production or operating activities will help in improving the cash flow by reducing investment in physical assets.

Special orders should only be considered if unused capacity exists.

If the incremental costs of processing further is greater than the incremental revenue,the decision to process the product or service further is justified.

Which of the following could not be a relevant cost in deciding whether or not to eliminate a producing department?

Courtney Sinclaire is trying to rent a new bicycle.She has narrowed her choices to two lease arrangements,each with unique characteristics.Bike Superior would rent for $220 per year,and Bike Deluxe's annual rent would be $250.Bike Superior would need a new seat costing $35 and new racing tires costing $95.The old seat and tires could be sold for $30.Bike Deluxe is fully equipped but would need to be painted at a cost of $110.Maintenance and upkeep on both bikes would average $60 per year. a. Identify the relevant data in this problem. b. Prepare an incremental analysis for Courtney to aid her in this decision. c. What decision should Courtney make?

What two criteria must be met for information to be considered relevant to decision making?

Incremental analysis identifies both the benefits and the drawbacks of each alternative.

All of the following are relevant in a sell or process-further decision except

In manufacturing companies,a common decision facing managers is whether to make or buy some or all of the parts used in product assembly.

Anderson Co.makes and uses 5,000 components each year in its manufacturing operations.An outside supplier has offered to supply the components to Anderson at $66 per unit.Anderson's production costs are as follows: Direct materials \ 8 Direct labor 32 Variable overhead 12 Fixed overhead (based on normal capacity) 34 If Anderson accepts the order,$8 of fixed overhead per unit will be eliminated. What is the relevant cost to produce one unit?

There are products or services that can be either sold in a basic form or be processed further.

Which of the following techniques is most useful for a special order decision?