Exam 11: Decision Making and Relevant Information

Lewis S.Gray Inc.manufactures a part for use in its production of art deco furniture.When 10,000 items are produced,the costs per unit are: Colonial Accents Company has offered to sell to Lewis S.Gray 10,000 units of the part for $125 per unit.The plant facilities could be used to manufacture another part at a savings of $180,000 if Lewis S.Gray accepts the supplier's offer.In addition,$30 per unit of fixed manufacturing overhead on the original part would be eliminated. Required: a.What is the relevant per unit cost for the original part? b.Which alternative is best for Lewis S.Gray Company? By how much?

Feedback from previous decisions uses historical information and,therefore,is irrelevant for making future predictions.

Kinnane's Fine Furniture manufactures two models,Standard and Premium.Weekly demand is estimated to be 106 units of the Standard Model and 74 units of the Premium Model.The following per unit data apply: If there are 495 machine-hours available per week,how many rockers of each model should Kinnane produce to maximize profits?

Explain what revenues and costs are relevant when choosing among alternatives.

If a company does not use one of its limited resources in the best possible way,the lost contribution to income could be called a(n)________.

Which of the following is a relevant cost to be included in a make-or-buy decision?

Which of the following is true of historical costs?

Sarasota Bicycles has been manufacturing its own wheels for its bikes.The company is currently operating at 100% capacity,and variable manufacturing overhead is charged to production at the rate of 30% of direct labor cost.The direct materials and direct labor cost per unit to make the wheels are $3.00 and $3.60 respectively.Normal production is 200,000 wheels per year. A supplier offers to make the wheels at a price of $8 each.If the bicycle company accepts this offer,all variable manufacturing costs will be eliminated,but the $84,000 of fixed manufacturing overhead currently being charged to the wheels will have to be absorbed by other products. Required: a.Prepare an incremental analysis for the decision to make or buy the wheels. b.Should Sarasota Bicycles buy the wheels from the outside supplier? Justify your answer.

Dantley's Furniture manufactures rustic furniture.The cost accounting system estimates manufacturing costs to be $190 per table,consisting of 80% variable costs and 20% fixed costs.The company has surplus capacity available.It is Back Forrest's policy to add a 45% markup to full costs.Dantley's Furniture is invited to bid on a one-time-only special order to supply 180 rustic tables.What is the lowest price Dantley's Furniture should bid on this special order?

Which of the following is not true about one-time-only special orders?

Computer Products produces two keyboards,Regular and Special.Regular keyboards have a unit contribution margin of $128,and Special keyboards have a unit contribution margin of $720.The demand for Regulars exceeds Computer Product's production capacity,which is limited by available machine-hours and direct manufacturing labor-hours.The maximum demand for Special keyboards is 80 per month.Management desires a product mix that will maximize the contribution toward fixed costs and profits. Direct manufacturing labor is limited to 1,600 hours a month and machine-hours are limited to 1,200 a month.The Regular keyboards require 20 hours of labor and 8 machine-hours.Special keyboards require 34 labor-hours and 20 machine-hours. Let R represent Regular keyboards and S represent Special keyboards.The correct set of equations for the keyboard production process is ________. Constraints: Constraints: Constraints: Constraints:

John's 8-year-old Chevrolet Trail Blazer requires repairs estimated at $7,000 to make it road worthy again.His wife,Sherry,suggested that he should buy a 5-year-old used Jeep Grand Cherokee instead for $7,000 cash.Sherry estimated the following costs for the two cars: What should John do? What are his savings in the first year?

The formal process of choosing between alternatives is known as a(n)________.

The management accountant for the Chocolate S'more Company has prepared the following income statement for the most current year: a.Do you recommend discontinuing the Other Candy product line? Why or why not? b.If the Chocolate product line had been discontinued,corporate profits for the current year would have decreased by what amount?

McMurphy Corporation produces a part that is used in the manufacture of one of its products.The costs associated with the production of 12,000 units of this part are as follows: Of the fixed factory overhead costs,$55,000 is avoidable.Conners Company has offered to sell 12,000 units of the same part to McMurphy Corporation for $41 per unit. Assuming there is no other use for the facilities,Schmidt should ________.

Book value is defined as the ________.

For one-time-only special orders,fixed costs may be relevant but NOT variable costs.

Fluty Corporation manufactures a product that has two parts,A and B.It is currently considering two alternative proposals related to these parts. The first proposal is for buying Part A.This would free up some of the plant space for the manufacture of more of Part B and assembly of the final product.The product vice president believes the additional production of the final product can be sold at the current market price.No other changes in manufacturing would be needed. The second proposal is for buying new equipment for the production of Part B.The new equipment requires fewer workers and uses less power to operate.The old equipment has a net disposal value of zero. Required: Tell whether the following items are relevant or irrelevant for each proposal.Treat each proposal independently. a.Total variable manufacturing overhead,Part A b.Total variable manufacturing overhead,Part B c.Cost of old equipment for manufacturing Part B d.Cost of new equipment for manufacturing Part B e.Total variable selling and administrative costs f.Sales revenue of the product g.Total variable costs of assembling final products h.Total direct manufacturing materials,Part A i.Total direct manufacturing materials,Part B j.Total direct manufacturing labor,Part A k.Total direct manufacturing labor,Part B

Springer Products manufactures three different product lines,Model X,Model Y,and Model Z.Considerable market demand exists for all models.The following per unit data apply: How can Lisa Dynondo encourage her salespeople to promote the more profitable model?

A.C.Tech Manufacturing Appliances manufactures three sizes of kitchen appliances: small,medium,and large.Product information is provided below. The maximum machine-hours available are 6,500 per week. Which of the three product models should be produced first if management incorporates a short-run profit maximizing strategy?