Exam 8: Tactical Decision-Making and Relevant Costing

Santorino Company produces two models of a component, Model K-3 and Model P-4.The unit contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14.Each model must spend time on a special machine.The firm owns two machines that together provide 4,000 hours of machine time per year.Model K-3 requires 15 minutes of machine time; Model P-4 requires 30 minutes of machine time. - What is the contribution margin per unit of scarce resource (machine time) for Model K-3?

Hyacinth Company is designing an all-in-one grill and cooler aimed at sports fans.The company believes that the product can be sold for $250.Hyacinth requires a 20% profit on new products.What is the target cost of the all-in-one grill and cooler?

In short-run decision making, the alternative with the lowest overall cost is always chosen.

The limitations faced by firms in terms of resources and product demand are called:

The operations of Knickers Corporation are divided into the Pacers Division and the Bulls Division.Projections for the next year are as follows: Operating income for Knickers Corporation as a whole if the Bulls Division were dropped would be

Short-run decision making only involves short-run decisions that have nothing to do with the firm's overall strategy.

Santorino Company produces two models of a component, Model K-3 and Model P-4.The unit contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14.Each model must spend time on a special machine.The firm owns two machines that together provide 4,000 hours of machine time per year.Model K-3 requires 15 minutes of machine time; Model P-4 requires 30 minutes of machine time. - What is the amount of machine time for model P-4 in terms of percent of a machine hour?

StarZinc Company produced 200 defective units last month at a unit manufacturing cost of $50.The defective units were discovered before leaving the plant.StarZinc can sell them as is for $35 or can rework them at a cost of $25 and sell them at the regular price of $100.The total relevant cost of reworking the defective units is:

A manager will make a __________________ when determining if a specially priced order should be accepted or rejected.

Victor's Detailing customers would be willing to pay $57 per detail.The company requires a 40% profit on each job.The average job would cost $30. - Victor's uses target costing.Victor's Detailing should:

Target costing can be used most effectively in the design and development stage of the product life cycle.

Matching ​ Match each statement with the correct item below. -​Sunk costs

Ring Company makes telephones.Currently, Ring makes all components of the telephones in-house.An outside company has offered to supply one component, part number X76, for $12 each.Ring uses 22,000 of these components per year.Costs of X76 are as follows:​ ​ ​ Suppose that 30% of the fixed overhead is avoidable if part X76 is not made by Ring.Should Ring purchase the part from the outside supplier?

Matching ​ Match each statement with the correct item below. -​Constraints

Elegance Bath Products, Inc.(EBP) makes a variety of ceramic sinks and tubs.EBP has just developed a line of sinks and tubs made from a mixture of glass and ceramic.The sinks sell for $150 each and have variable costs of $80.The tubs sell for $600 and have variable costs of $450.The glass and ceramic sinks and tubs require the use of specialized molding equipment.The specialized molding equipment has 4,050 hours of capacity per year.A sink uses an average of 2 hours of specialized molding equipment time; a tub uses an average of 5 hours of specialized molding equipment time - Assume that EBP can sell as many as 1,000 sinks and 500 tubs per year.How many tubs should EBP produce?

Linear programming is a special technique that can be used to determine the optimal product mix when there are multiple constraints.

A _________________ can be used to structure the decision maker's thinking and to organize the information to make a good decision.

Santorino Company produces two models of a component, Model K-3 and Model P-4.The unit contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14.Each model must spend time on a special machine.The firm owns two machines that together provide 4,000 hours of machine time per year.Model K-3 requires 15 minutes of machine time; Model P-4 requires 30 minutes of machine time. - What is the contribution margin per unit of scarce resource (machine time) for Model P-4?

A company is considering a special order for 1,000 units to be priced at $8.90 (the normal price would be $11.50).The order would require specialized materials costing $4.00 per unit.Direct labor and variable factory overhead would cost $2.15 per unit.Fixed factory overhead is $1.20 per unit.However, the company has excess capacity and acceptance of the order would not raise total fixed factory overhead.The warehouse, however, would have to add capacity costing $1,300.Which of the following is relevant to the special order?

Sabor Inc.is a medical testing laboratory that performs several tests and analyses for hospitals in the area.Four of the tests that they perform require the use of a specialized machine that can supply 14,000 hours per year.Information on the four lab tests follows: - What is the contribution margin per unit of machine time for Test D?