Exam 11: Decision Making and Relevant Information

Cassidy Products Inc.is considering eliminating Model EOS1 from its product line because of losses over the past quarter.The past three months of information for model EOS1 is summarized below: Manufacturing costs: Support costs are 70% variable and the remaining 30% is depreciation of special equipment for model EOS1 that has no resale value. Should Cassidy eliminate Model EOS1 from its product line? Why or why not?

Which of the following is true in a decision to keep or replace existing equipment?

In the decision making of a one-time-only special order,it is assumed that accepting the special order is not expected to affect the selling price to other customers.

The objective of the Theory of Constraints is to increase throughput margin while increasing investment in plant and equipment.

Are relevant revenues and relevant costs the only information needed by managers to select among alternatives? Explain using examples.

Which of the following is an irrelevant cost when considering where to drop a customer?

An incremental cost is

Striker 44 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,$58,000 is avoidable. Assuming no other use of their facilities,the highest price that McMurphy should be willing to pay for 12,000 units of the part is ________.

The best way to avoid misidentification of relevant costs is to focus on ________.

Rockford Company manufactures a part for use in its production of hats.When 10,000 items are produced,the costs per unit are: Angel Company has offered to sell to Rockford Company 10,000 units of the part for $6.00 per unit.The plant facilities could be used to manufacture another item at a savings of $9,000 if Rockford accepts the offer.In addition,$1.00 per unit of fixed manufacturing overhead on the original item would be eliminated. Required: a.What is the relevant per unit cost for the original part? b.Which alternative is best for Rockford Company? By how much?

Each of the following are true of relevant information except:

A product cost is composed of the following: The product sells for $40 and a 15% commission is paid to a salesperson for every unit sold.Management accountants also estimate that storage cost per unit averages $0.75 per unit.What is the full cost of the product?

Determining which products should be produced when the plant is operating at full capacity is referred to as a(n)________.

A recent college graduate has the choice of buying a new car for $33,500 or investing the money for four years with an 11% expected annual rate of return.He has an investment of $41,000 in equities and bonds which yields 8% expected annual rate of return.If the graduate decides to purchase the car,the best estimate of the opportunity cost of that decision is ________.

An incremental product cost is generally a fixed cost.

Employee morale at Dos Santos,Inc. ,is very high.This type of information is an example of ________.

To maximize profits,managers should produce more of the product with the greatest contribution margin per unit of the constraining resource.

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: If there is a machine breakdown,which model is the most profitable to produce?

A cost may be relevant for one decision,but NOT relevant for a different decision.

Kitchens Sales Inc.is approached by Mr.Louis Cifer,a new customer,to fulfill a large one-time-only special order for a product similar to one offered to regular customers.The following per unit data apply for sales to regular customers: Kitchens Sales inc.has excess capacity.Mr.Cifer wants the cabinets in cherry rather than oak,so direct material costs will increase by $65 per unit.The average marketing cost of Kitchens Sales product is $175 per order.Which of the following costs is NOT considered to calculate the minimum acceptable price of a one-time-only special order?