Exam 24: Short Run Decision Analysis

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

An old machine that originally cost $9,500 thus far has accumulated depreciation of $1,900.The remaining useful life is four years,with no salvage value at the end of its useful life.A new machine is now available that costs $8,500,with a useful life of five years and no residual value.The old machine could be sold now for $5,900.The annual cash operating costs for the old machine are $5,000,but for the new machine they would be only $2,500.Gross revenue from the products would be $12,000 annually for either machine.The company should

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

On November 25,20xx,Marquez Golf Co.received a special order for 5,000 three-wood golf club sets.These golf clubs will be marketed in Japan.Ito Imports,Inc.,the purchasing company,wants the clubs bulk packaged and is willing to pay $55 per set for the clubs.The president of Marquez Golf Co.has gathered the following product costing information about the set of woods being discussed: direct materials (wood),$600 per 100 sets; direct materials (metal shafts),$1,000 per 100 sets; and direct materials (grips),$150 per 100 sets.Direct labor is $20 per set.Variable manufacturing costs are $12 per set,and fixed manufacturing costs are 20 percent of direct labor dollars.Variable selling expenses are $10 per set,and variable shipping costs are $7 per set.Fixed general and administrative costs are figured at 30 percent of direct labor dollars.Bulk shipping costs will total $11,000,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 Ito Imports, Inc. What decision should be made? b. What is the lowest possible price Marquez Golf Co. could charge per set of woods and still make a $9,000 profit on this order?

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

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

Taylor manufactures 12,000 units of a part used in its production to manufacture guitars.The annual production activities related to this part are as follows: Direct materials,$24,000 Direct labor,$60,000 Variable overhead,$54,000 Fixed overhead,$84,000 Best Guitars,Inc.,has offered to sell 12,000 units of the same part to Taylor for $22 per unit.If Taylor were to accept the offer,some of the facilities presently used to manufacture the part could be rented to a third party at an annual rental of $18,000.Moreover,$4 per unit of the fixed overhead applied to the part would be totally eliminated. What should Taylor's decision be,and what is the total cost savings that would result?

Which of the following statements about incremental analysis is false?

California Chemical Co.produces several chemical compounds.Each compound can be sold at the split-off point or processed further.The following results apply to May: Compound Sales Value at Split- Costs of Additional Sales Value After off Point Processing Additional Processing Chem I 59,600 7,300 87,400 Chem II 70,700 17,500 82,600 Chem III 46,700 6,200 55,500 After determining which products should be sold at the split-off point and which should be processed further,the total revenue provided by these three products would be

The decision analysis,which uses incremental analysis to identify the relevant costs and revenues,consists of two steps.

Products Uno,Dos,Tres,and Quatro have contribution margins of $2,$3,$4,and $5,respectively,and require 1.5,2,2.5,and 3 machine hours per unit,respectively.Assuming that all units produced could be sold and that total machine hours per month are limited,on which product should the company concentrate its efforts?

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

A sell or process-further decision is a decision about whether to sell a joint product at the split-off point or sell it after further processing.

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

Special orders should only be considered if unused capacity exists.

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

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.

Opportunity costs arise when the choice of one course of action eliminates the possibility of another course of action.

Fixed costs are irrelevant in make-or-buy decisions.

Competition,social issues,and timeliness are examples of qualitative factors.