Exam 24: Short Run Decision Analysis

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

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.

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: Current production and sales (units) 105,000 158,000 95,000 Machine hours per unit 10 5 13 Selling price per unit \ 63 \ 48 \ \ 4 Unit variable cost \ 33 \ 26 \ 49 Unit variable selling cost \ 17 \ 13 \ 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.

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

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

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

A cost that does not change between the alternatives is known as a differential cost.

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

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

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

While performing an incremental analysis for outsourcing decision,information such as depreciation and other fixed costs are not relevant.

Candidates for outsourcing would include

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. In the decision to make or buy the part,what is the relevant fixed overhead?

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 _____________________

A special order should be accepted only if it maximizes operating income.

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

In choosing among alternatives,managers are guided by historical cost information.

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.

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. If the offer is accepted,operating income will