Exam 24: Short Run Decision Analysis

The term incremental cost refers to

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

Opportunity costs are irrelevant costs.

The objective of a sales mix decision is to select the alternative that maximizes the contribution margin per constrained resource.

It is not possible for a company to provide the full variety of products or services which the customer demands within a given time.

Cost information for short-run decision making focuses on

During 2010,America,Inc.,produced,among other products,9,300 cameras,incurring the following unit costs: $5 in direct materials,$3 in direct labor,$2 in variable overhead,$4 in fixed overhead,$0.50 in variable selling and administrative expenses,and $1 in fixed selling and administrative expenses.An outsider had offered to produce the cameras for $12 each.Assuming that the factory space would have been idle otherwise,acceptance of the outside offer would have

Irrelevant costs are costs that are

Sunk costs are omitted from decision analysis

Discuss the qualitative factors that should be considered in short-run decision making.

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

Relevant costs in a sell or process-further decision include

In a proposal to increase the production of clock radios,the sales managers of Rinaldo Electronics reported the total additional cost required to meet the increased production level.The increase in total cost is known as the

On November 15,20xx,The Cooper Co.received a special order for 6,000 three-wood golf club sets.These golf clubs will be marketed in Asia.Seto Imports,Inc.,the purchasing company,wants the clubs bulk packaged and is willing to pay $72 per set for the clubs.The president of The Cooper Co.has gathered the following product costing information about the set of woods being discussed: direct materials (wood),$900 per 100 sets; direct materials (metal shafts),$1,200 per 100 sets; and direct materials (grips),$200 per 100 sets.Direct labor is $27 per set.Variable manufacturing costs are $19 per set,and fixed manufacturing costs are 20 percent of direct labor dollars.Variable selling expenses are $14 per set,and variable shipping costs are $9 per set.Fixed general and administrative costs are figured at 30 percent of direct labor dollars.Bulk shipping costs will total $10,000,thus eliminating both variable selling and variable shipping costs from consideration.The company did not expect this order and will reach planned production capacity for the year.However,there is enough plant capacity for the special order.Round answers to two decimal places. a. Prepare an analysis for the president to use in deciding whether to accept or reject the offer by Seto Imports, Inc. What decision should be made? b. What is the lowest possible price The Cooper Co. could charge per set of woods and still make a $12,000 profit on this order?

Facts that are the same for each alternative are not relevant for management decision making.

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

Contribution margin information is not relevant for

The Dropinsky Company's management wants to determine if Division Y should be eliminated.The following data are available (in thousands). $\text { Segmnented Income Statement }$ Division Division Division Total Sales \ 200 \ 300 \ 400 \ 900 Less variable costs Contribution margin \ 120 \ 150 \ 240 \ 510 Less direct fixed costs Segment margin \ 150 Less common fixed costs Operating income \ 60 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?

Segment profitability analysis includes the preparation of a segmented income statement.

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