Exam 24: Short Run Decision Analysis

The idea behind incremental analysis is to review decision data that differ between alternatives; information that is the same for all alternatives is considered irrelevant to the decision process.

Qualitative factors used by decision makers include all of the following except

When resources like direct material,labor or time are scarce,the goal is to minimize the contribution margin per unit of scarce resource.

Opportunity costs are irrelevant costs.

Make-or-buy decisions,such as whether to make a part internally or buy it from an external supplier,may lead to outsourcing.

The first step in the incremental analysis is to eliminate any irrelevant revenues and costs.

Which of the following statements about incremental analysis is false?

The Big Bear Lumber Company is trying to decide whether to sell or process further rough-sawn lumber.The joint cost of producing the rough-sawn lumber is $10,500.The following data are available: a. What is the incremental effect, increase or (decrease), on operating income of processing the lumber further? b. Which type of lumber should be processed further?

Joint costs are relevant costs in a sell or process-further decisions and they do change if further processing occurs.

Red Rock Enterprises is analyzing its sales mix to find out if it is maximizing its profits.The company produces three similar items: Alpha,Beta,and Gamma.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: Alpha Beta Gamma Current production and sales (urits) 105,000 158,000 95,000 Machine hours per unit 10 5 13 Selling price per unit \ 63.00 \ 4800 \ 84.00 Unit variable cost \ 33.00 \ 26.00 \ 49.00 Unit variable selling cost \ 20.00 \ 16.00 \ 19.00 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.